Written Communications (Updated 11/19/24) — Cupertino City Council, November 18, 2024 (part 1 of 3)

CC 11-18-2024
Item No. 2
Cupertino Public
Facilities Corporation
Management Report
Written Communications
From: Rhoda Fry
To: City Clerk; City Council
Subject: November 18, Public Facilities Corporation Meeting Agenda Item #2 - EMAIL #1 Date: Monday, November 18, 2024 2:39:27 PM
Attachments: Search _ California Secretary of State.pdf CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.

Dear Board Members of the Public Facilities Corporation, This is the first of more than one email on Agenda #2.

The staff report is woefully incomplete and I am asking that the board meet again within 3 months to respond to long lingering questions.

1. How much money did the City spend in resolving the problem with the tax exempt status of the corporation?

2. The City hired a firm to refinance our debt in 2020. Why did the firm fail to recognize that the City had lost its tax-exempt status and more at that time? And, will that firm compensate the City for its expenses in making the fix?

3. Please refer to the attached that shows that the Public Facilities was delinquent in filing with the Secretary of State. How did this happen?
Typically, the Secretary of State notifies corporations when the Statement of Information is due. The City had been delinquent in filing for many years! Please refer to the screenshot attached that was created today. Who is responsible for this?

4. Corporations require annual meetings and why hasn’t the City had annual meetings of the corporation to retain its status so as not to pierce the corporate veil?

5. The properties that the Corporation has been leasing has changed over time and it is unclear as to which of these properties are currently being leased and whether they are properly being described. Please clean up the mess.

My next message will pertain to the refinance that occurred in 2020.

Sincerely,
Rhoda Fry
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From: Rhoda Fry
To: City Clerk; City Council
Subject: November 18, Public Facilities Corporation Meeting Agenda Item #2 - EMAIL #2 Date: Monday, November 18, 2024 2:46:06 PM
Attachments: B - Draft Resolution.pdf
Staff Report - 2024-03-20T155017.603.pdf
A - Good Faith Estimates.pdf
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.

Dear Board Members of the Public Facilities Corporation,

This is the second email pertaining to Agenda #2.

This email focuses on the refinance of our debt in 2020 and the public demands an explanation.

The City paid a third party $313,822 to refinance our debt.

The below and attached is an email that I sent to the Audit Committee on March 21, 2024 and I never received a response.

In 2020, the City of Cupertino refinanced our debt.

City Council was advised that the interest rate would DECREASE.

Instead the interest rate INCREASED from 3% to 4%.

The payment did go down because some of the debt was paid off.

Why wasn’t the final interest rate provided at that time? Why didn’t the council meeting include a truth-in-lending statement explaining what the savings to the City would have been to pay off the Certificates of Participation completely?

Note that a Certificate of Participation is similar to a Municipal Bond but does not require a vote of the electorate.

This debt instrument has similar regulations under the SEC.

You can find the official statement here with the new 4% interest rate:
https://emma.msrb.org/IssueView/Details/P1405077
You can find the official statement here with old 3% interest rate:
https://emma.msrb.org/IssueView/Details/EP352488

Attached are the documents from the September 15, 2020 meeting.

You will see that the final interest rate was not provided. I’m feeling duped.

If you watch the video of the meeting (which is at the very end of that council meeting) you will find that council members were told that the interest rate would be reduced and that was not true.

Additionally, during that meeting, the consultant (UFI) revealed that his company would be compensated for the refinance. This does not seem right to me.

Sincerely,
Rhoda Fry

EXHIBIT A

GOOD FAITH ESTIMATES
The good faith estimates set forth herein are provided with respect to the City of Cupertino’s (the “City’s”) 2020A Certificates of Participation (the “Certificates”) in accordance with California Government Code Section 5852.1. Such good faith estimates have been provided to the City by Urban Futures, Inc. as municipal advisor to the City (the “Municipal Advisor”), each with respect to the Certificates.

Principal Amount. The Municipal Advisor has informed the City that, based on the City’s financing plan and current market conditions, its good faith estimate of the aggregate principal amount of the Certificates to be sold is $22,695,000 (the “Estimated Principal Amount”).

True Interest Cost of the Certificates. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Certificates is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the true interest cost of the Certificates, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Certificates, is 1.26%.

Finance Charge of the Certificates. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Certificates is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the finance charge for the Certificates, which means the sum of all fees and charges paid to third parties (or costs associated with the Certificates), is $313,822.

Amount of Proceeds to be Received. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Certificates is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the amount of proceeds expected to be received by the City for sale of the Certificates, less the finance charge of the Certificates, as estimated above, and any reserve fund funded with proceeds of the Certificates, is $25,666,245.

Total Payment Amount. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Certificates is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the total payment amount, which means the sum total of all payments the City will make to pay debt service on the Certificates, plus the finance charge for the Certificates, as described above, not paid with the proceeds of the Certificates, calculated to the final maturity of the Certificates, is $27,547,758.

The foregoing estimates constitute good faith estimates only. The actual principal amount of the Certificates issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to (a) the actual date of the sale of the Certificates being

different than the date assumed for purposes of such estimates, (b) the actual principal amount of Certificates sold being different from the Estimated Principal Amount, (c) the actual amortization of the Certificates being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates at the time of sale of the Certificates being different than those estimated for purposes of such estimates, (e) other marke t conditions, or (f) alterations in the City’s financing plan, or a combination of such factors. The actual date of sale of the Certificates and the actual principal amount of Certificates sold will be determined by the City based on the timing of the need for proceeds of the Certificates and other factors. The actual interest rates borne by the Certificates will depend on market interest rates at the time of sale thereof. The actual amortization of the Certificates will also depend, in part, on market inte rest rates at the time of sale thereof. Market interest rates are affected by economic and other factors beyond the control of the City.

RESOLUTION NO. _____

A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CUPERTINO

PUBLIC FACILITIES CORPORATION AUTHORIZING THE EXECUTION

AND DELIVERY OF DOCUMENTS RELATING TO THE SALE AND
DELIVERY OF 2020A CERTIFICATES OF PARTICIPATION IN A
PRINCIPAL AMOUNT NOT TO EXCEED $ 27,000,000 AND AUTHORIZING

AND DIRECTING CERTAIN ACTIONS IN CONNECTION THEREWITH
WHEREAS, the Cupertino Public Facilities Corporation (the “Corporation”) is a nonprofit public benefit corporation organized and existing under the laws of the State of California with the authority to assist in the financing and refinancing of the construction, reconstruction, modernization and equipping of certain capital improvements on behalf of the City of Cupertino (the “City”); and WHEREAS, the Corporation previously assisted the City in the execution and delivery of the City’s $43,940,000 Certificates of Pa rticipation (2012 Refinancing Project) (the “ Refunded Certificates”) in order to refinance certain public capital improvements; and WHEREAS, the City desires to refinance the Refunded Certificates in order to achieve debt service savings through the execution and delivery o f the City of Cupertino 2020A Certificates of Participation in the aggregate principal amount not to exceed $ 27,000,000 (the “Certificates”) pursuant to a Trust Agreement (the “Trust Agreement”) by and among the City, the Corporation, and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”); and WHEREAS, i n order to facilitate the execution a nd delivery of the Certificates, the City intends to lease to the Corporation the City’s City Hall, Administrative Offices, Cupertino Community Hall/Council Chambers, Senior Center, and Quinlan Community Center properties, and the existing improvements thereon (collectively, the “Leased Premises”) pursuant to a Site Lease (as defined below) and to lease the Leased Premises back from the Corporation pursuant to the Lease (as defined below); and
WHEREAS, the Certificates will evidence undivided and fractional interests in certain lease payments by the City to the Corporation pursuant to the Site Lease and the Lease; and WHEREAS, to facilitate the execution and delivery of the Certificates, the Corporation wi ll assign the lease payments to Trustee pursuant to an Assignment Agreement (the “Assignment Agreement”), by and between the Corporation and the Trustee , and the Trustee at the request of the City will execute the Certificates pursuant to the Trust Agreement; and WHEREAS, t he forms of the documents necessary to refinance the Refunded Certificates and provide for the execution and delivery of the Certificates are on file with the Secretary as described herein; and
WHEREAS, good faith estimates of certain information rela ting to the Certificates are set forth in the staff report submitted to the Board of Directors herewith as required by California Government Code Section 5852.1; such estimates were provided by Urban Futures Inc., the City’s Municipal Advisor; and
2 WHEREAS, the refinancing of the Refunded Certificates for debt service savings will provide a public benefit to the City and its residents by reducing the cost of the public capital improvements refinanced using the proceeds of the Refunded Certificates; and WHEREAS, all acts, conditions and things required by the Constitution and laws of the State to exist, to have happened and to have been performed precedent to and in connection with the consummation of the financing authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the Corporation is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such financing for the purpose, in the manner and upon the terms herein provided.

NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Cupertino Public Facilities Corporation as follows:

Section 1. Authorization of Certificate s. This Board of Directors hereby authorizes the preparation, sale and delivery of the Certificates, in one or more tax-exempt or taxable series, in a combined aggregate principal amount not to exceed $ 27,000,000 in accordance with the terms and provisions of the Trust Agreement and within the parameters set forth in Sections 1 and 6 of t he Resolution of the City Council of the City approving the execution and delivery of the Certificates .

The purposes for which the proceeds of the sale of the Certificates shall be expended are: (i) to prepay the Refunded Certificates; and (ii) to pay the costs of the sale and delivery of the Certificates.

Section 2. Certificate Documents. The forms of the Site Lease between the Corporation and the City (the “Site Lease”) , the Lease Agreement between the City and the Corporation (the “Lease”) , th e Trust Agreement , and the Assignment Agreement (collectively, the “Agreements”) presented at this meeting and on file with the Secretary are hereby approved. Each of the President, Vice President, Treasurer and Secretary of the Corporation, and other off icers of the Corporation designated in writing by the President or Treasurer (collectively, the “Authorized Officers”), is hereby authorized and directed , for and in the name and on behalf of the Corporation, to execute and deliver the Agreements in substa ntially said form, with such additions thereto and changes therein as the Authorized Officer or Officers executing same may require or approve , such approval to be conclusively evidenced by the execution and delivery thereof by one or more of the Authorized Officers.

Section 3. Preliminary Official Statement . The form of the Preliminary Official Statement, presented at this meeting and on file with the Secretary, is hereby approved. Each of Authorized Officers is hereby authorized and directed, for and in the name a nd on behalf of the Corporation, to make such changes to the Preliminary Official Statement as are necessary to make it final as of its date and are authorized and directed , for and in the name and on behalf of the Corporation, to execute and deliver a cer tificate deeming the Preliminary Official Statement final as of its date in accordance with Rule 15c2-12 promulgated under the Securities Exchange Act of 1934.

Each of the Authorized Officers is hereby authorized and directed , for and in the name and on b ehalf of the Corporation, to execute, approve and deliver the final Official Statement in the form of the Preliminary Official Statement with such changes, insertions and omissions therein as the Authorized Officer or Officers executing the same may requir e or approve, such approval to be conclusively evidenced by the execution and delivery thereof by one or more of such Authorized Officers.

Section 4. Attestations. The Secretary and such person or persons as may have been designated by the Secretary to act on her be half, are hereby authorized and directed to attest the 3 signature of the Authorized Officers designated herein to execute any documents described herein, and to affix and attest the seal of the Corporation, as may be required or appropriate in connection with the execution and delivery of the Lease, the Site Lease, the Trust Agreement, the Escrow Agreement and such other agreements authorized by this resolution as the Secretary shall deem appropriate.

Section 5. Appointment of Trustee and Legal Counsel . The Bank of New York Mellon Trust Company, N.A., is hereby appointed to serve as Trustee with respect to the Certificates.

The Cupertino City Attorney is hereby appointed to serve as general legal counsel to the Corporation.

Section 6. Other Actions. Each of the Authorized Off icers is authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents and agreements which they may deem necessary or advisable in order to consummate the sale , execution and delivery of the Certificates, the refinancing of the Refunded Certificates, the execution of the Agreements, and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution, the Certificates, the Agreements, the Purchase Agreement, the Preli minary Official Statement, and the Official Statement, including, but not limited to, the entering into of any agreements terminating the leasehold interests in the Leased Premises relating to the Refunded Certificates and or any subordination, non -disturbance and attornment agreements with sub -lessees of the Leased Premises, removing, adding or substituting any City properties from or to the properties to be leased pursuant to the Site Lease and the Lease, terminating the site lease and lease agreement executed in connection with the Refunded Certificates, and taking such actions as may be needed to remove encumbrances to title to the properties to be leased pursuant to the Site Lease and the Lease and to obtain title insurance with respect to such properti es. Such actions heretofore taken by such officers are hereby ratified, confirmed, and approved.

Section 7. Effect. This Resolution shall take effect from and after its date of adoption.

Section 8. Certification by Secretary. The Secretary shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.

PASSED, APPROVED, and ADOPTED at a special meeting of the Board of Directors of the Cupertino Public Facilities Corporation this 15th day of September 2020, by the following vote:
4 Members of Board of Directors
AYES:

NOES:

ABSENT:

ABSTAIN:

SIGNED:
_____________________________________
Steven Scharf, President
Cupertino Public Facilities Corporation

_____________________________________
Date
ATTEST:

Kirsten Squarcia, Secretary

_____________________________________
Date

CUPERTINO PUBLIC FACILITIES CORPORATION STAFF REPORT
Meeting: SEPTEMBER 15, 2020

Subject
Authorizing the execution and delivery of documents relating to the sale and delivery of the City of Cupertino’s 2020A Certificates of Participation (“Certificates”) to refinance the City’s outstanding Certificates of Participation (2012 Refinancing Project) (“2012 Certificates” or “Refunded Certificates”) for debt service savings and authorizing related actions.

Recommended Action
Adopt Resolution No. _______ of the Board of Directors of the Cupertino Public Facilities Corporation authorizing the execution and delivery of documents relating to the sale and delivery of the 2020A Certificates of Participation in a principal amount not to exceed $27 million and authorizing and directing certain actions in connection therewith.

Discussion
This report is a companion to a report on the City Council agenda.

The Cupertino Public Facilities Corporation (the “Corporation”), formed in 1986, is a nonprofit public benefit corporation organized and existing under the laws of the State of California with the authority to assist in the financing and refinancing of the construction, reconstruction, modernization and equipping of certain capital improvements on behalf of the City of Cupertino (the “City”). The City Council comprises the Board of Directors of the Corporation. The City’s Mayor, Vice Mayor, Secretary, and Treasurer serve as the President, Vice President, Secretary, and Treasurer of the Corporation.

The Corporation previously assisted the City in executing and deliver ing the City’s $43.940 million 2012 Certificates, wh ich are currently outstanding in the amount of $27.010 million, have interest rates ranging from 3.000% to 3.125%, and a final maturity of July 1, 2030. The 2012 Certificates can be currently refunded on any date without premium. Municipal bond rates are currently near historical lows. The Corporation has determined that refinancing the 2012 Certificates for debt service savings will provide a public benefit to the City and its residents by reducing annual debt service payments

through 2030, reducing the cost of the public capital improvements refinanced using the proceeds of the Refunded Certificates.

In order to facilitate the sale and delivery of the Certificates, the City will lease certain real property consisting generally of City Hall, Administrative Offices, Cupertino Community Hall/Council Chambers, Senior Center, and Quinlan Community Center properties and the existing improvements thereon (the “Leased Premises”), to the Corporation under a Site Lease in consideration of the payment o f an upfront rental payment; and the Corporation will sublease the Leased Premises back to the City under a Lease Agreement in consideration of the agreement by the City to pay semiannual lease payments (the “Lease Payments”).

The Corporation will assign its right to receive the Lease Payments to The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), under an Assignment Agreement. I n consideration of such assignment , the Trustee will execute and deliver not-to-exceed $27 million aggregate principal amount of Certificates, each evidencing a direct, undivided fractional interest in the Lease Payments, the proceeds of which will be applied to refinance the 2012 Certificates , as provided in a Trust Agreement among the Corporation, the City, and the Trustee, and an Escrow Agreement between the City and The Bank of New York Mellon Trust Company, N.A., as escrow agent ( the “Escrow Agent”).

Staff recommends that the Board of Directors of the Corporation adopt the proposed Resolution that approves all documents and actions needed to authorize the issuance and sale of the Certificates, including the following substantially final form financing documents together with any changes or additions deemed advisable and approved by the President, Vice President, Treasurer, Secretary , or other officers of the Corporation designated in writing by the President or Treasurer:

 Site Lease between the City as lessor and the Corporation as lessee, whereby the City leases the Leased Premises to the Corporation in consideration of the payment by the Corporation to the City of an upfront rental payment which is sufficient to enable the City to refinance the 2012 Certificates and to pay related financing costs.

 Lease Agreement between the Corpo ration as lessor and the City as lessee, whereby the Corporation subleases the Leased P remises back to the City in consideration of the payment by the City of semiannual Lease Payments.

 Assignment Agreement between the Corporation and the Trustee, providing for the Corporation’s assignment of certain of its rights in the Site Lease and the Lease Agreement, including its right to receive Lease Payments, to the Trustee for the benefit of the Certificate owners.

 Trust Agreement among the City, the Corporation, and the Trustee, whereby the Trustee agrees to execute and deliver the Certificates, and which sets forth the material terms and provisions relating to the Certificates.

 Escrow Agreement between the City and the Escrow Agent containing terms by which the Escrow Agent will hold proceeds of the Certificates on behalf of the owners of the 2012 Certificates to pay and discharge the 2012 Certificates and give proper notice to the owners.

 Termination Agreement among the City, the Corporation, and the Trustee for the 2012 Certificates providing for the termination of the 2012 Site Lease, the 2012 Lease Agreement, and the 2012 Assignment Agreement relating to the 2012 Certificates.

 Certificate Purchase Agreement between the City and the underwriter Stifel, Nicolaus & Company, Inc., pursuant to the terms and provisions of which the Certificates will be sold with a negotiated method of sale, such terms and provisions including the underwriter’s discount not to exceed 0. 50% of the par amount of the Certificates.

 Preliminary Official Statement pursuant to which the C ertificates will be offered for purchase by the public and must contain all facts material to the C ertificates and the Corporation (with certain permitted exceptions to be completed in the final Official Statement) and must not omit or misstate any such material facts. The Preliminary Official Statement has been reviewed and approved for transmittal to the Board by the City’s financing team. The distribution of the Preliminary Official Statement by the Corporation is subject to federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require the Preliminary Official Statement to include all facts that would be material to an investor in the Certificates. Material information is information that there is a substantial likelihood would have actual significance in the deliberations of the reasonable investor when deciding whether to buy or sell the C ertificates. If the Board concludes that the Preliminary Official Statement includes all facts that would be material to an investor in the Certificates, it must adopt a resolution that authorizes staff to execute a certificate to the effect that the Preliminary Official Statement has been “deemed final.”

 Amended Debt Management Policy that contains general policies regarding the City and its related entities’ use and management of debt and has been updated to include continuing disclosure policies and procedures.

If the Resolution is adopted by the Board, sale of the Certificates is expected to be completed on or about the week of October 5th with a delivery/closing date on or about

the week of October 26th, at which time the City will receive the proceeds for refinancing the 2012 Certificates.

Sustainability Impact
No sustainability impact.

Fiscal Impact
Assuming S&P’s affirmation of the City’s AA+ General Fund rating and based on interest rates as of September 1, 20 20 (plus a 50 basis point cushion), the sale and delivery of the Certificates i s estimated to result in cash flow savings of approximately $4.15 million through June 1, 2030. Annual debt service savings is estimated to be approximately $415,000. Net present value savings is estimated to be approximately $2.26 million (or

8.36% on $27.010 million of refunded 2012 Certificates). The estimated savings are net of all financing costs and will benefit the City’s General Fund.

In accordance with California Government Code Section 5852.1, good faith estimates are provided with respect to the Certificates in Exhibit A.

_____________________________________

Prepared by: Kristina Alfaro, Director Administrative Services Reviewed by: Dianne Thompson, Assistant City Manager
Approved for Submission by: Deborah Feng, City Manager Attachments:

A – Exhibit A: Good Faith Estimates
B – Resolution No. _________
[Note: This report and the Resolution reference documents that are attached to the companion report on the City Council agenda.]

From: Rhoda Fry
To: City Clerk; City Council
Subject: November 18, Public Facilities Corporation Meeting Agenda Item #2 - EMAIL #3 Date: Monday, November 18, 2024 3:25:44 PM
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.

Dear Board Members of the Public Facilities Corporation,

This is the third email pertaining to Agenda #2.

This email focuses on sales-tax-revenues reported by the City’s consultant during the refinance of our debt in 2020.

The public demands an explanation.

These items need to be discussed by the Board.

The City was to refinance its debt in the fall of 2020, well after the city’s fiscal end-of-year in 2019/2020.

There is a significant inconsistency between the stated 2020 sales-tax-revenue when the refi was initiated through March of 2021 and when it was reported again in March 2022.

I cannot make heads or tails of it.

There is some language in the ACFR about a double tax payment, but businesses in the City do not pay sales tax to the City.

Can we please get an explanation as to what happened?
Also, can we please see how the money for the walk/bike trails donated by Apple was accounted for?

In looking at the sales-tax revenues reported to the state, the City’s gross sales tax revenue was $35,468,863.

In looking at the tax rebates that the City made to Insight and BAZ of $9,170,351, the City’s net sales-tax income was about $26M.

The $26M net-sales-tax revenue is also stated in the underwriter’s 9/8/20 preliminary statement for the year ending June 2020.

Somehow, in March 2022, documents have the 2020 net-sales-tax revenue jumping by about $10M to about $36M!
How did this happen?
This change is also reflected in the City’s ACFR and open gov state that net-sales-tax income to about $36M.

Finally, the Preliminary Official Statement was woefully incomplete, failing to mention the S&P rating, the interest rate and more.

Here is an image of the sales tax revenue reported in the preliminary statement from September 8, 2020 page 28 (you can find it in the attachments of the corporation’s previous meeting):

When the document become official on September 29, 2020 (retrieved from the EMMA website), we once again see the $26M in sale-tax-revenue:

On 3/31/2021 – the City once again re-stated next sales tax income for the year ending June 2020 as being $26M. This was retrieved from EMMA.

Then - - - all of a sudden on 3/20/22– the net-sales-tax revenue jumps in the disclosure to nearly $36M the following year. PLEASE EXPLAIN!!!

Please help shed light on these inconsistencies.

Sincerely,
Rhoda Fry
From: Rhoda Fry
To: City Clerk; City Council
Subject: November 18, Public Facilities Corporation Meeting Agenda Item #2 - EMAIL #4 Date: Monday, November 18, 2024 3:38:43 PM
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.

Dear Board Members of the Public Facilities Corporation,

This is the fourth and hopefully final email pertaining to Agenda #2.

The board should also be very upset that the City filed the most recent ACFR without either the approval of the Council or the Board.

That ACFR had to be amended later.

The board should be very upset that the City has routinely filed delinquent ACFRs.

Other Cities are able to timely report ACFRs – typically by the end of the calendar year.

The ACFR is like a corporation’s annual report and it is required to be filed timely for the benefit of its shareholders.

Moreover, a notice was placed that the ACFR would miss the deadline and would be expected to be filed shortly, when in fact it took months before it was filed.

Please find below a snippet from the EMMA website that was captured today.

Look at the filing for the ACFR – it should be filed by December of the fiscal year (6 months after year end) and is required to be posted by the end of March per the conditions of the debt documents.

For year ended 6/30/2023, final ACFR was posted on 7/9/2024 For the year ended 6/30/2022, final ACFR was posted on 7/27/2023 For the year ended 6/30/2021, final ACFR was posted on 9/30/2022 For the year ended 6/30/2020, final ACFRE was posted on 3/30/2021

Sincerely,
Rhoda Fry
From: Kitty Moore
To: Kirsten Squarcia; Lauren Sapudar; City Clerk
Subject: Cupertino Public Facilities Corp. Written Communications Date: Monday, November 18, 2024 3:58:35 PM
Attachments: 2020 COP Offering.pdf
Cupertino Public Facilities Corp Bylaws.pdf
PFC Bylaws.pdf
f8038g.pdf
Guidelines93-8.pdf
Dear City Clerk,

Please include this email and the attachments for written communications for the Cupertino Public Facilities Corporation (CPFC) Board of Directors meeting:

2020 COP Offering
Cupertino Public Facilities Bylaws
PFC Bylaws
IRS Form 8038-G
CA Guidelines for Certificates of Participation

The EMMA MSRB link to view the certificates is here:
https://emma.msrb.org/IssueView/Details/P1405077

Should that link not work please use the home page here: https://emma.msrb.org/

Thank you,

Kitty Moore

Kitty Moore
Councilmember
City Council
[email protected]
(408) 777-1389

NEW ISSUE - BOOK-ENTRY-ONLY RATING:

S&P: “AA+”
(See “RATING” herein)
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California (“Special Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and com pliance with certain covenants and requirements described herein, interest (and original issue discount) with respect the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Special Counsel, interest (and original issue discount) with respect to the Certificates is exempt from State of California personal income tax. See the caption “TAX MATTERS” with respect to tax consequences concerning the Certificates.
$22,040,000

CITY OF CUPERTINO
2020A CERTIFICATES OF PARTICIPATION
Dated
: Date of Delivery Due: June 1, as shown on the inside cover The City of Cupertino 2020A Certificates of Participation (the “Certificates”) are being executed and delivered to (i) provide funds to prepay the outstanding Certificates of Participation (2012 Refinancing Project) (the “2012 Certificates”); and (ii) pay the costs of issuance incurred in connection with the execution and delivery of the Certificates. The Certificates represent fractional undivided intere sts of the registered owners thereof in certain lease payments (the “Lease Payments”) to be made by the City of Cupertino (the “City”) to the Cupertino Public Facilities Corporation (the “Corporation”), under a Lease Agreement, dated as of October 1, 2020 (the “Lease”), by and between the City and the Corporation. Pursuant to the Lease, the City will lease from the Corporation certain real property and the existing improvements thereof consisting of the City’s City Hall and Administrative Offices, Community Hall/Council Chambers and Quinlan Community Center (collectively, the “Leased Premises”). See “DESCRIPTION OF THE LEASED PREMISES” and “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES” herein.

The Certificates will be executed and delivered in the principal amount of $5,000 and any integral multiple thereof pursuant to a Trust Agreement, dated as of October 1, 2020 (the “Trust Agreement”), by and among the City, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Interest represented by the Certificates is payable semiannually on June 1 and December 1 of each year, commencing on December 1, 2020. See “THE CERTIFICATES” herein.

The Certificates will be executed and delivered in book -entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”) , which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Principal and interest payments due with respect to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of principal and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates. See Appendix F“DTC BOOK-ENTRY SYSTEM” herein.

No reserve fund has been established in connection with the execution and delivery of the Certificates.

The Certificates are not subject to optional redemption prior to maturity. The Certificates are subject to extraordinary prepayment prior to maturity, as described herein. See “THE CERTIFICATES—Prepayment” herein.

THE CERTIFICATES DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED

TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE DOES NOT CONSTITUTE

AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE CERTIFICATES NOR THE

OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OF

CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

The purchase of the Certificate s involves certain risks which should be considered by investors. See “RISK FACTORS” for a discussion of certain risk factors that should be considered in addition to the other matters set forth herein.

This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision.

The Certificates will be offered when, as and if executed and delivered, and received by the Underwriter, subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain other conditions. Certain legal matters will be passed upon for the City and the Corporation by the City Attorney and by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, for the Underwriter by Quint & Thimmig LLP, Larkspur, California, as Underwriter’s Counsel, and for the Trust ee by its counsel. It is anticipated that the Certificate s will be available in book -entry form for delivery through the facilities of DTC on or about October 22, 2020.

Dated:

September 29, 2020

$22,040,000

CITY OF CUPERTINO
2020A CERTIFICATES OF PARTICIPATION
Maturity Schedule
(Base CUSIP†: 231210)

Maturity
(June 1)
Principal
Amount Interest Rate Yield Price CUSIP †
2021 $2,140,000 4.000% 0.150% 102.340 231210GE9
2022 1,880,000 4.000 0.180 106.132 231210GF6
2023 1,955,000 4.000 0.210 109.853 231210GG4
2024 2,035,000 4.000 0.260 113.423 231210GH2
2025 2,115,000 4.000 0.330 116.770 231210GJ8
2026 2,200,000 4.000 0.450 119.638 231210GK5
2027 2,285,000 4.000 0.570 122.213 231210GL3
2028 2,380,000 4.000 0.700 124.408 231210GM1
2029 2,475,000 4.000 0.820 126.377 231210GN9
2030 2,575,000 4.000 0.950 127.943 231210GP4

† CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Global Market Intelligence. Copyright(c) 2020 CUSIP Global Services. All rights reserved. C USIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. Neither the City nor the Underwriters or their agents or counsel assume responsibility for the accuracy of such numbers.

CITY OF CUPERTINO

COUNTY OF SANTA CLARA, CALIFORNIA

CITY COUNCIL
Steven Scharf, Mayor
Darcy Paul, Vice Mayor
Liang Chao, Council Member
Rod Sinks, Council Member
Jon Willey, Council Member
_____________

CUPERTINO PUBLIC FACILITIES CORPORATION

BOARD OF DIRECTORS
Steven Scharf, President
Darcy Paul, Vice President
Liang Chao, Board Member
Rod Sinks, Board Member
Jon Willey, Board Member
_____________

CITY OFFICIALS
Deborah Feng, City Manager
Kristina Alfaro, Administrative Services Director/City Treasurer Heather Minner, City Attorney
Kirsten Squarcia, City Clerk
_____________

SPECIAL COUNSEL AND DISCLOSURE COUNSEL
Stradling Yocca Carlson & Rauth,
a Professional Corporation
Newport Beach, California
_____________

MUNICIPAL ADVISOR
Urban Futures, Inc.

Daly City, California
_____________

TRUSTEE
The Bank of New York Mellon Trust Company, N.A.

Los Angeles, California
_____________

VERIFICATION AGENT

Robert Thomas CPA, LLC
Minneapolis, Minnesota

No dealer, broker, salesperson or other person has been authorized by the City or the Corporation to give any information or to make any representations in connection with the offer or sale of th e Certificates other than those contained herein and, if given or made, such other information or repres entations must not be relied upon as having been authorized by th e City or the Corporation. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy n or shall there be any sale of the Certificates by a person in any jurisdic tion in which it is unlawful for such person to make such an o ffer, solicitation or sale.

This Official Statement is not to be construed as a cont ract with the purchasers or owners of the Certificates.

Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The Underwriter has provided the following sentence for inclusion in this Official Statement:

The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securiti es laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

This Official Statement and the inform ation contained herein are subject to completion or amendm ent without notice and neither delivery of this Official Statement nor any sale made hereunde r shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties descri bed herein since the date hereo f.

These securities may not be sold nor may an offer to buy be acce pted prior to the time the Official Statement is delivered in f inal form. This Official Statement is being submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Secu rities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of th e United States Securities Act of 1933, as amended.

Such statements are genera lly identifiable by the terminology used such as a “plan,” “expect,” “estimate,” “project,” “budget,” “intend” or similar words. Such forward- looking statements include, but are not limite d to certain statements contained in the information under the captions “THE CITY OF CUPERTINO” and “CITY FINANCIAL INFORMATION.”

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH

FORWARD-LOOKING STATEMENTS INVOLVE KNOW N AND UNKNOWN RISKS, UNCERTAINTIES AND

OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS

DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES

NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS

SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR

RESULTS TO DIFFER MATERIALLY FROM THOS E INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITER MAY

OVERALLOT OR EFFECT TRANSACTIONS THAT STAB ILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MI GHT OTHERWISE PREVAIL IN THE OPEN MARKET.

SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY

OFFER AND SELL THE CERTIFICATES TO CERTAIN DE ALERS AN

D DEALER BANKS AND BANKS ACTING

AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE

COVER PAGE HEREOF AND SAID PUBLIC OFFERING PR ICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS

AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

The City maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Certificates.

TABLE OF CONTENTS
PAGE
i

INTRODUCTION ................................................................................................................................................ 1 General ............................................................................................................................................................. 1 Security and Sources of Payment for the Certificates ...................................................................................... 1 No Reserve Fund .............................................................................................................................................. 2 The Certificates ................................................................................................................................................ 2 Additional Certificates ...................................................................................................................................... 2 Continuing Disclosure ...................................................................................................................................... 3 Professionals Involved in the Offering ............................................................................................................. 3 Financial Statements of the City ....................................................................................................................... 3 Certificate Owners’ Risks ................................................................................................................................. 3 Miscellaneous ................................................................................................................................................... 3 PREPAYMENT PLAN ........................................................................................................................................ 4 DESCRIPTION OF THE LEASED PREMISES ................................................................................................. 4 ESTIMATED SOURCES AND USES OF FUNDS ............................................................................................ 5 THE CERTIFICATES .......................................................................................................................................... 6 General ............................................................................................................................................................. 6 Prepayment ....................................................................................................................................................... 6 Prepayment Procedures .................................................................................................................................... 6 Partial Prepayment............................................................................................................. ............................... 7 SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES ...................................................... 7 General ............................................................................................................................................................. 8 Lease Payments ................................................................................................................................................ 8 Substitution or Release of the Leased Premises ............................................................................................... 9 No Reserve Fund .............................................................................................................................................. 9 Additional Payments ........................................................................................................... ............................. 9 Insurance ..................................................................................................................... ................................... 10 CERTIFICATE PAYMENT SCHEDULE ......................................................................................................... 11 THE CITY OF CUPERTINO ............................................................................................................................. 11 General ........................................................................................................................................................... 11 City Council .................................................................................................................. ................................. 12 City Management ........................................................................................................................................... 12 Employee and Employee Relations ................................................................................................................ 13 Prior Employee Embezzlement ...................................................................................................................... 14 Risk Management ........................................................................................................................................... 14 CITY FINANCIAL INFORMATION ................................................................................................................ 15 COVID-19 Pandemic Impact ......................................................................................................................... 15 Accounting and Financial Reporting .............................................................................................................. 17 City Blended Component Units and Fiduciary Component Units ................................................................. 18 Financial Policies ............................................................................................................ ............................... 18 Major Revenues and Expenses ....................................................................................................................... 20 Budget Procedure, Current Budget and Historical Budget Information ......................................................... 20 Comparative Change in Fund Balance of the City General Fund .................................................................. 23 Comparative General Fund Balance Sheets of the City ................................................................................. 24 Capital Improvement Program ....................................................................................................................... 24 Property Taxes ................................................................................................................................................ 25 Sales Taxes ..................................................................................................................................................... 27 Transient Occupancy Tax ............................................................................................................................... 29 Utility User Tax .............................................................................................................................................. 29 Franchise Fees ................................................................................................................................................ 29 Charges for Services ....................................................................................................................................... 30 Licenses and Permits ...................................................................................................................................... 30 Use of Money and Property ............................................................................................................................ 30

TABLE OF CONTENTS
PAGE
ii

Other Revenues .............................................................................................................................................. 30 Indebtedness ................................................................................................................................................... 31 Retirement System ............................................................................................................. ............................ 31 Other Post-Employment Benefits ................................................................................................................... 35 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS ............ 38 Article XIIIA of the State Constitution .......................................................................................................... 38 Legislation Implementing Article XIIIA ........................................................................................................ 38 Split Roll Initiative ......................................................................................................................................... 38 Article XIIIB of the State Constitution ........................................................................................................... 39 Articles XIIIC and XIIID of the State Constitution ........................................................................................ 40 Proposition 62 ................................................................................................................................................. 41 Proposition 1A ................................................................................................................................................ 41 Proposition 22 ................................................................................................................................................. 42 Proposition 26 ................................................................................................................................................. 42 Possible Future Initiatives .............................................................................................................................. 42 RISK FACTORS ................................................................................................................................................ 43 No Pledge of Taxes or Revenues .................................................................................................................... 43 Additional Obligations of the City ................................................................................................................. 43 Default ............................................................................................................................................................ 44 Release or Substitution of Property ................................................................................................................ 44 Abatement ..................................................................................................................... ................................. 45 No Reserve Fund ............................................................................................................................................ 45 Natural Disasters ............................................................................................................................................ 46 Hazardous Substances .................................................................................................................................... 47 Cybersecurity .................................................................................................................................................. 47 Limitations on Remedies; Bankruptcy ........................................................................................................... 47 Dependence on State for Certain Revenues.................................................................................................... 48 COVID-19 Pandemic ..................................................................................................................................... 49 THE CORPORATION ....................................................................................................................................... 50 TAX MATTERS.................................................................................................................... ............................. 50 CERTAIN LEGAL MATTERS ......................................................................................................... ................ 51 LITIGATION .................................................................................................................... ................................. 52 General ........................................................................................................................................................... 52 Vallco Claim ................................................................................................................................................... 52 RATING ............................................................................................................................................................. 53 UNDERWRITING ............................................................................................................................................. 53 MUNICIPAL ADVISOR ............................................................................................................. ...................... 53 CONTINUING DISCLOSURE .......................................................................................................................... 54 FINANCIAL STATEMENTS OF THE CITY ................................................................................................... 54 MISCELLANEOUS ........................................................................................................................................... 55

APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF CUPERTINO ......................................................................................... A-1

APPENDIX B THE CITY OF CUPERT INO AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2019 ..................................................... B-1 APPENDIX C SUMMARY OF PRIN CIPAL LEGAL DOCUMENTS ................................................ C-1 APPENDIX D FORM OF LEGAL OPINION ....................................................................................... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ......................................... E-1 APPENDIX F DTC BOOK-ENTRY SYS TEM ...................................................................................... F-1

1 $22,040,000

CITY OF CUPERTINO
2020A CERTIFICATES OF PARTICIPATION

INTRODUCTION
This introduction contains only a brief summary of certain of the terms of the Certificates being offered, and a brief description of the Official Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of, provisions of the Constitution and laws of the State of California and any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions. Capitalized terms used in this Official Statement and not defined elsewhere herein have the meanings given such terms in Appendix C
“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein.

This Official Statement speaks only as of its date, and the information contained herein is subject to change.

General
This Official Statement, including the cover page, inside cover page and the Appendices attached hereto (the “Official Statement”), provides certain information concerning the execution and delivery of the City of Cupertino 2020A Certificates of Participation (t he “Certificates”) in an aggregate principal amount of $22,040,000. The Certificates will be executed and de livered pursuant to that certain Trust Agreement, dated as of October 1, 2020 (the “Trust Agreement”), by and among the City of Cupertino (the “City”), the Cupertino Public Facilities Corporation (the “Corporation”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Certif icates represent fractional undivided interests of the registered owners thereof (the “Owners”) in certain lease payments (the “Lease Payments”) to be made by the City to the Corporation under that certain Lease Agreement, dated as of October 1, 2020 (the “Lease”), by and between the Corporation, as lessor, and the Ci ty, as lessee. See “D ESCRIPTION OF THE LEASED PREMISES” and “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES Lease Payments.”
The Certificates are being delivered to provide funds to (i) prepay the City’s outstanding Certificates of Participation (2012 Refinancing Project) (the “2012 Certificates”); and (ii) pay the costs incurred in connection with the execution and delivery of the Certificates. See “PREPAYMENT PLAN” herein.

The City is located in the County of Santa Clara (the “County”). For more information regarding the City, see the captions “THE CITY OF CUPERTI NO,” “CITY FINANCIAL INFORMATION” and Appendix A
“ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF CUPERTINO.” Security and Sources of Payment for the Certificates
The Certificates are being executed and delivered pursuant to the Trust Agreement. The City will lease certain real property and the existing improveme nts thereon (collectively re ferred to herein as the “Leased Premises”) consisting of the City’s City Hall and Administrative Offices, Community Hall/Council Chambers and Quinlan Community Center pursuant to that certain Site Lease, dated as of October 1, 2020, between the City, as lessor, and th e Corporation, as lessee (the “Site Lease”). Under the Lease, the Corporation will lease the Leased Premises back to the City. The City is required under the Lease to pay Lease Payments for the use and possession of the Leased Premises, as further described under the caption “DESCRIPTION OF THE LEASED PREMISES” herein. The City is also required to pay any taxes and assessments and the cost of maintenance and repair of the Leased Premises.

Pursuant to that certain Assignment Agreement, dated as of October 1, 2020 (the “Assignment Agreement”) by and between the Corporation and the Truste e, the Corporation will assign to the Trustee, for the benefit of the Owners, substantially all of its right s under the Lease, including its rights to receive and

2 collect Lease Payments and prepayments from the City under the Lease and rights as may be necessary to enforce payment of Lease Payments and prepayments. A ll rights assigned by the Corporation pursuant to the Assignment Agreement will be administered by the Trustee in accordance with the provisions of the Trust Agreement for the equal and proportionate benefit of all Owners.

The Lease Payments are calculated to be sufficient to pay, when due, the principal and interest with respect to the Certificates. The City has covenanted in the Lease that it will take such action as may be necessary to include the Lease Payments and other payments coming due under the Lease in its annual budgets and to make the necessary annual appropriations therefor as required by the Lease. The City’s obligation to make Lease Payments is subject to complete or partial abatement in the event of th e taking of, damage to or loss of use and possession of all or a portion of th e Leased Premises. See “RISK FACTORS—Abatement” herein.

THE CERTIFICATES DO NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH

THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO

MAKE LEASE PAYMENTS UNDER THE LEASE DOES NOT CONSTITUTE AN OBLIGATION OF

THE CITY FOR WHICH THE CITY IS OBLIGA TED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.

NEITHER THE CERTIFICATES NOR THE OBLI GATION OF THE CITY TO MAKE LEASE

PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR

ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

No Reserve Fund
The City has not established a reserve fund in co nnection with the execution and delivery of the Certificates. In the event of abatement of Lease Pa yments, only proceeds of insurance (including rental interruption insurance) may be available to pay Lease Payments. See “RISK FACTORS—Abatement” herein.

The Certificates
Interest represented by the Certificates is payabl e semiannually on June 1 and December 1 of each year, commencing on December 1, 2020 (each an “Inter est Payment Date”). See “THE CERTIFICATES — General” herein. The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nom inee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Purc hasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. The Certificates will be executed and delivered in the principal amount of $5,000 and any integral multiple thereof. Principal and interest payments due with respect to the Certificates are payable directly to DTC by the Tr ustee. Upon receipt of payments of principal and interest, DTC will in turn distribute such pa yments to the beneficial owners of the Certificates.

See “THE CERTIFICATESGeneral” and Appendix F“DTC BOOK-ENTRY SYSTEM” herein.

Additional Certificates
Pursuant to the Trust Agreement, the City may cause Additional Certificates to be executed and delivered without the consent of the Owners of the Certifi cates if certain conditions precedent are satisfied. In connection with the execution and delivery of Additional Certificates, the Lease Payments due under the Lease will be increased to an amount sufficient to pay the principal, premium (if any) and interest payable on all outstanding Certificates and Additional Certificates. Th e Certificates and any Additional Certificates will be secured on a parity under the Trust Agreement by Lease Payments and other amounts held in the funds established thereunder other than the Rebate Fund. See Appendix C—“SUMMARY OF PRINCIPAL LEGAL

3 DOCUMENTS—DEFINITIONS AND SUMMA RY OF THE TRUST AGREEMENT—THE CERTIFICATES—Additional Certificates.”
Continuing Disclosure
The City has covenanted for the benefit of the holders and beneficial owners of the Certificates to provide, or cause to be provided, to the Municipal Securities Rulemaking Board for purposes of Rule 15c2-12(b)(5) (the “Rule”) adopted by the Securities and Exchange Commission certain annual financial information and operating data and, in a timely manner, notice of certain enumerated events. These covenants have been made in order to assist the Underwriter in complying with the Rule. See “CONTINUING DISCLOSURE” herein for a description of the specific nature of the annual report and notices of enumerated events and a summary description of the terms of the Disclosure Certificate pursuant to which such reports are to be made.

Professionals Involved in the Offering
The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, will act as Trustee with respect to the Certificates. The Certificates will be delivered subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corpor ation, Newport Beach, California, Special Counsel.

Certain legal matters will be passed upon for the City and the Corporation by the City Attorney and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel, for the Trustee by its counsel, and for the Underwriter by Quint & Thimmig LLP, Larkspur, California.

Financial Statements of the City
Included herein as Appendix B are the audited financ ial statements of the City as of and for the year ended June 30, 2019 (the “Financial Statements”), together with the report thereon dated March 6, 2020 of Crowe LLP, Costa Mesa, California (the “Auditor”). The Auditor has not undertaken to update the audited financial statements of the City or its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to its report dated March 6, 2020.

The Auditor’s consent to inclusion of the Financia l Statements in the Official Statement was not requested and the Auditor has not consented to the inclusion of the Financial Statements as an appendix to this Official Statement. The Auditor has not performed any procedures relating to this Official Statement.

Certificate Owners’ Risks
Certain events could affect the ability of the City to make the Lease Payments when due. See the caption “RISK FACTORS” herein for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Certificates.

Miscellaneous
It is anticipated that the Certificates in book-en try form will be available for delivery through the facilities of DTC on or about October 22, 2020 (the “Delivery Date”).

The description herein of the Trust Agreement, the Lease, the Site Lease, the Assignment Agreement and any other agreements relating to the Certificates are qualified in their entirety by reference to such documents, and the descriptions herein of the Certificates are qualified in their entirety by the form thereof and the information with respect thereto included in the aforementioned documents. See Appendix C“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein. Copies of the documents are

4 on file and available for inspection at the offices of the Trustee at 400 South Hope Street, Suite 500, Los Angeles, California 90071, Attention: Corporate Trust Department.

The information and expressions of opinion herein speak only as of their date and are subject to change without notice. Neither the delivery of this O fficial Statement nor any sa le made hereunder nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof.

The presentation of information, in cluding tables of receipt of reve nues, is intended to show recent historical information and, is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future.

PREPAYMENT PLAN
The Certificates are being sold to provide for the prepayment of the 2012 Certificates. Proceeds from the sale of the Certificates will be deposited in an es crow fund (the “Escrow Fund”) to be established by The Bank of New York Mellon Trust Company, N.A., as escrow agent and trustee for the 2012 Certificates (the “Escrow Agent”), pursuant to an escrow agreement (t he “Escrow Agreement”) by and between the City and the Escrow Agent. Amounts in the Escrow Fund will be applied by the Escrow Agent pursuant to the Escrow Agreement and the trust agreement for the 2012 Certificates, for the sole benefit of the holders of the 2012 Certificates. The amounts in the Es crow Fund will not serve as security or be available for payment of principal or interest with respect to the Certificates.

The City plans to prepay on October 30, 2020 (the “Prepayment Date”) all of the $27,010,000 remaining outstanding principal amount of the 2012 Certif icates at a prepayment price equal to the principal amount of the 2012 Certificates, plus accrued and unpaid interest to the Prepayment Date, without premium.

Robert Thomas CPA, LLC, acting as verification agent, will certify, in writing, that the amounts so transferred to the Escrow Agent will be sufficient to prepay the 2012 Certificates on the prepayment date at the required prepayment price.

DESCRIPTION OF THE LEASED PREMISES
The Leased Premises consist of (i) the City’s City Hall and Administrative Offices and the Cupertino Community Hall/City Council Chambers, including the appr oximately 5.6 acres of land owned by the City at the corner of Torre Avenue and Rodrigues Street, on wh ich such buildings are located, and (ii) the Quinlan Community Center, including the approximately 7.2 acres of land owned by the City, located at 10185 North Stelling Road, on which such building is located.

City Hall and Administrative Offices . The City’s City Hall and Administrative Offices building was built in 1965 and renovated in 1986. The structure cons ists of a two-story office building of approximately 23,040 total square feet. The insured value of the City Hall and Administrative Offices building is currently approximately $8 million. The City estimates that the parcel on which both the City Hall and Administrative Office building and the Community Hall/City Council Cham bers building are located has a market value of at least $17.79 million.

In 2019. the City commissioned a facility condition and use assessment with respect to the City Hall building which identified seismic and structural deficiencies. Further, although City Hall houses the City’s Emergency Operations Center (“EOC”), the report found th at City Hall does not meet the structural standards for this use. The City could pursue renovations to City Hall to correct various deficiencies, which might require the relocation of the City’s EOC and administrative functions during the renovations, or may instead determine to relocate its EOC and administrative functions from City Hall permanently and use the City Hall

5 structure for other purposes. The City could elect to finance any such renovation or rebuilding of the City Hall and Administrative Office building through the execution and delivery of Additional Certificates, payable from Lease Payments on a parity with the Certificates. Altern atively, the City could elect to release the portion of the Leased Premises containing the City Hall and Admi nistrative Office building from the Lease, subject to satisfaction of the requirements set forth in the Lease. See the captions “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES—S ubstitution or Release of the Leased Premises” and “RISK FACTORS—Release or Substitution of Property” herein and Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—COVENANTS WITH RESPECT TO THE LEASED PREMISES.”
Community Hall and City Council Chambers . The Community Hall/City Council Chambers building was built in 2004 and is a one-story multi-purpos e building of approximately 6,516 square feet. The insured value of the Community Hall/City Council Chamber is approximately $2.6 million.

Quinlan Community Center . The Quinlan Community Center building was built in 1990. The structure consists of a single-story building of appr oximately 28,695 total square feet, which serves as a recreation center, with a community kitchen, two meeti ng halls, a music room, conference room, craft room, pre-school room, activity room, dance studio, lobby area and offices. The insured value of the Quinlan Community Center building is approximately $8.9 million. The Quinlan Community Center is located on an approximately 7.2 acre parcel of land with an estimated value of over $22 million.

Pursuant to the terms of the Site Lease, the City ha s leased the Leased Premis es to the Corporation.

Pursuant to the terms of the Lease, the Corporation has leased the Leased Premises back to the City.

Pursuant to the Lease, the City and the Corporat ion have agreed and determined that the Lease Payments required to be made under the Lease represent the fair rental value of the Leased Premises. Under the terms of the Lease, the City may substitute other pr operty for the Leased Premises, or any portion thereof, and may release portions of the Leased Premises provided that certain conditions set forth in the Lease are met.

See the captions “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES—Substitution or Release of the Leased Premises” and “RISK FACTORS— Release or Substitution of Property” herein and Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—COVENANTS WITH RESPECT TO THE LEASED PREMISES—Substitution or Releas e of the Leased Premises.”

ESTIMATED SOURCES AND USES OF FUNDS
The following table summarizes the estimated sources and uses of Certificate proceeds:

Sources of Funds
Principal Amount of Certificates $ 22,040,000.00
Original Issue Premium 3,878,703.75
2012 Certificates Reserve Fund 1,631,187.40
Total Sources $ 27,549,891.15

Uses of Funds
Escrow Fund $ 27,279,117.67
Costs of Issuance(1) 270,773.48
Total Uses $ 27,549,891.15

(1) Includes underwriter’s discount, Special Couns el and Disclosure Counsel fees, title insurance, rating agency and verification agent fees, and other issuance costs.

6 THE CERTIFICATES
General
The Certificates will be executed and delivered in the form of fully registered Certificates in principal amounts of $5,000 and any integral multiple thereof. The Certificates will be dated their date of delivery and mature on June 1 in the years set forth on the inside cover page hereof. Each Certificate will be payable with respect to interest on June 1 and December 1 of each year, commencing on Dece mber 1, 2020, at the respective rates of interest set forth on the inside cover page hereof.

The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal, premium, if any, and interest payments due with respect to the Certificates ar e payable directly to DTC by the Trustee. Upon receipt of payments of principal, premium, if any, and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates. See Appendix F“DTC BOOK-ENTRY SYSTEM” herein.

Prepayment
Extraordinary Prepayment from Net Proceeds . The Certificates are subject to prepayment prior to their respective maturity dates on any date, in whole or in part, from Net Proceeds which the Trustee deposits in the Prepayment Fund as provided in the Lease at least 45 days prior to the date fixed for prepayment and credited toward the prepayment made by the City pursuant to the Lease, at a prepayment price equal to the principal amount thereof together with the accrued interest to the date fixed for prepayment, without premium. “Net Proceeds” means any proceeds of any insura nce, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys’ fees) incurred in the collection thereof.

For extraordinary prepayment of Ce rtificates pursuant to the Trust Ag reement, the Trustee will select Certificates for prepayment so that the Net Proceeds will be applied to prepay a proportionate amount of Certificates and Additional Certificates based on th e Outstanding principal amount and by lot within any maturity. The Trustee will promptly notify the City and the Corporation in writing of the Certificates so selected for prepayment by mailing to the City and the Corporation copies of the notice of prepayment provided for in the Trust Agreement.

No Optional Prepayment . The Certificates are not subject to optional prepayment prior to their respective maturity dates.

Prepayment Procedures
When prepayment is authorized or required pursu ant to the Trust Agreement, the Trustee will give notice of the prepayment of the Cer tificates. Such notice will specify: (a) the prepayment date, (b) the prepayment price, (c) if less than all of the Outstandi ng Certificates are to be prepaid, the Certificate numbers (and in the case of partial prepayment, the respecti ve principal amounts), (d) the CUSIP numbers of the Certificates to be pr epaid, (e) the place or places where the prepayment will be made, and (f) the original date of execution and delivery of the Certificates. Such noti ce will further state that on the specified date there will become due and payable upon each Certificate to be pr epaid, the portion of the principal amount of such Certificate to be prepaid, together with interest accrued to said date, and that from and after such date, provided that moneys therefor have been deposited with the Truste e, interest with respect thereto will cease to accrue and be payable.

7 Notice of prepayment will be sent by first class mail or delivery service postage prepaid, or by telecopy, to the Depository on the date of mailing of notice to the Owners by first class mail and by first class mail, postage prepaid, to the Corporation and the resp ective Owners of any Certificates designated for prepayment at their addresses appear ing on the Certificate registration books, at least 20 days, but not more than 60 days, prior to the prepayment date; provided that neither failure to receive such notice nor any defect in any notice so mailed will affect the sufficiency of the pr oceedings for the prepayment of such Certificates.

Under no circumstances will the Trustee have any liability to any party for any inaccurate CUSIP number.

So long as DTC is the registered Owner of the Certificates, all such notices will be provided to DTC as the Owner, without respect to the beneficial ownership of the Certificates. See Appendix F“DTC BOOK- ENTRY SYSTEM” herein.

Notice having been given to the Owners of any Cer tificates being prepaid as set forth in the Trust Agreement, and the moneys for the prepayment (including the interest to the applicable date of prepayment), having been set aside in the Prepayment Fund, the Cer tificates will become due and payable on the date of prepayment, and upon presentation and surrender thereof at the Principal Office of the Trustee such Certificates will be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to the date of prepayment.

If, on the date of prepayment moneys for the prepayment of all the Certificates to be prepaid, together with interest to the date of prepayment, are held by the Trustee so as to be availabl e therefor on such date of prepayment, and, if notice of prepayment thereof has be en given as described in the Trust Agreement, then, from and after the date of prepayment, interest with re spect to the Certificates to be prepaid will cease to accrue and become payable. All moneys held by or on be half of the Trustee for the prepayment of Certificates will be held in trust for the account of the Owners of th e Certificates so to be prepaid, without liability for interest thereon.

All Certificates paid at maturity or prepaid prior to maturity pursuan t to the provisions of the Trust Agreement will be cancelled upon surrender thereof and destroyed.

Partial Prepayment
Upon surrender by the Owner of a Certificate for partial prepayment at the Principal Office of the Trustee, payment of such partial prepayment of the pr incipal amount of a Certificate will be paid to such Owner. Upon surrender of any Certificate prepaid in pa rt only, the Trustee will execute and deliver to the registered Owner thereof, at the expense of the City, a new Certificate or Certificates which shall be of authorized denominations equal to the unprepaid portion of the Certificate surrendered and of the same tenor and maturity. Such partial prepayment will be valid upon payment of the amount thereby required to be paid to such Owner, and the City, the Corporation and the Trustee will be released and discharged from all liability to the extent of such payment.

SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES
The Certificates do not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to make Lease Payments under the Lease does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness of the City, the State of California or any of political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction.

8 General
Each Certificate represents a fractional undivided interest of the Owner thereof in the Lease Payments and prepayments to be made by the City to the Trustee under the Lease. The Certificates are secured under the Trust Agreement by the respective Lease Payments and other amounts held in the respective funds established thereunder other than the Rebate Fund. The City is obligated to pay Lease Payments from any source of legally available funds, and has covenanted in the L ease to include all Lease Payments coming due in its annual budgets and to make the necessary annual appropriations therefor as required under the Lease. The Corporation, pursuant to the Assignment Agreement, has assigned all of its rights under the Lease (excepting certain rights as specified therein), including the right to receive Leas e Payments and prepayments, to the Trustee for the benefit of the respect ive Owners. By the second Business Day prior to each Interest Payment Date (if such day is not a Business Day, the next succee ding Business Day), the City must pay to the Trustee a Lease Payment (to the extent required under the Lease) which is expected to equal the amount necessary to pay the principal and interest with respect to the Certificates on the next succeeding Interest Payment Date.

The City’s obligation to make Lease Payments will be abated in whole or in part, and to the extent of, substantial interference with use and possession of all or part of the Leased Premises arising from material damage, destruction, title defect or taking by emin ent domain or condemnation of the Leased Premises.

Abatement would not constitute a default under the Lease and the Trustee would not be entitled in such event to pursue remedies against the City. See “RISK FACTORS—Abatement” herein.

Under the Lease, the City agrees to pay certain taxes, assessments, utility charges, and insurance premiums charged with respect to the Leased Premises and fees and expenses of the Trustee. The City is responsible for repair and maintenance of the Leased Premises during the term of the Lease. The City may, at its own expense, in good faith contest such taxes, assessments and utility and other charges if certain requirements set forth in the Lease are satisfied, includ ing obtaining an opinion of counsel that the Leased Premises will not be subjected to loss or forfeiture.

Should the City default under the Lease, the Trust ee, as assignee of the Corporation, may terminate the Lease and re-lease the Leased Premises or may reta in the Lease and hold the City liable for all Lease Payments thereunder on an annual basis. Under no circumstances will th e Trustee have the right to accelerate Lease Payments. The exercise of the remedies provided to the Trustee is subject to various limitations on the enforcement of remedies against public agencies. See “RISK FACTORS—Default” herein.

Lease Payments
Subject to the provisions of the Lease regarding complete or partial abatement in the event of loss of use and possession of any portion of the Leased Prem ises (see the caption “RISK FACTORS — Abatement” herein) and prepayment of Lease Payments (see the provis ions relating to prepayment under the caption “THE CERTIFICATES” herein), the City agre es to pay to the Trustee, as assignee of the Corporation, the Lease Payments as annual rental for the use and possession of the Leased Premises. The Lease Payments are due and payable on the second Business Day prior to each Interest Payment Date (each, a “Lease Payment Date”).

Any monies held in an account of the Lease Paym ent Fund on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease and other amounts required for payment of past due principal or interest with respect to any Certificates not presented for payment) shall be credited to the paym ent of the respective Lease Payments due and payable on such Lease Payment Date to which such account of the Lease Payment Fund applies.

The Trust Agreement requires that Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee. Pursuant to the Trust Agreement, on June 1 and December 1 of each year, commencing December 1, 2020, the Trustee will apply such amounts in the respective accounts of the Lease

9 Payment Fund as are necessary to make interest and principal payments, as applicable, with respect to the Certificates as the same shall become due and payable, in the amounts specified in the Lease.

Substitution or Release of the Leased Premises
The Lease provides that the City shall have the righ t to substitute alternate real property for any portion of the Leased Premises or to release a portion of the Leased Premises from the lien of the Lease so long as the conditions precedent described below have been satisfied:
(A) The City has delivered a written certificate to the Trustee setting forth its findings that the Leased Premises, as constituted after such substitution or release: (i) has an annual fair rental value at least equal to the maximum Lease Payments payable by the City in any rental period; and (ii) has a useful life in excess of the final maturity of any Outstanding Certificates; (B) the City has obtained or caused to be obtained an ALTA title insurance policy or policies with respect to any substituted property in the amount at least equal to the aggregate principal amount of any Outstanding Certificates of the type and with the endorsements described in the Lease; (C) the City has provided the Trustee with an opinion of Special Counsel to the effect that such substitution or release will not, in and of itself, cause the interest evidenced and represented by the Certificates and any Additional Certificates (to the extent such Ad ditional Certificates are executed and delivered as tax- exempt Certificates) to be included in gross income for federal income tax purposes; (D) the City, the Corporation and the Trustee have executed, and the City has caused to be recorded with the Santa Clara County Recorder, any document necessary to reconvey to the City the portion of the Leased Premises being released and to include any substituted real property in the description of the Leased Premises contained herein and in the Site Lease; and
(E) the City has provided notice of such substitution or release to each rating agency then rating the Certificates.

See “RISK FACTORS—Release or Substitution of Property” and Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—COVENANTS WITH RESPECT TO THE LEA SED PREMISES—Substitution or Release of the Leased Premises.”
No Reserve Fund
The City has not established a reserve fund in co nnection with the execution and delivery of the Certificates. In the event of abatement of Lease Paym ents, only proceeds of rental interruption insurance or net proceeds of insurance may be available to pay Lease Payments. See the caption “RISK FACTORS— Abatement” herein.

Additional Payments
Under the Lease, the City is to pay such amounts (“Additional Payments”) as are required for the payment of all administrative costs relating to the Leas ed Premises or the Certif icates, including, without limitation, all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Corporation as a result of its leasehold interest in the Leased Premises or undertaking of the transactions contemplated in the L ease or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers and any and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to comply with the terms of the Certificates or of the

10 Trust Agreement, including premiums on insurance required to be maintained by the Lease or to indemnify the Corporation and its employees, officers and directors and the Trustee.

Insurance
Pursuant to the Lease, the City is required to obtain an ALTA leasehold title insurance policy (with western regional exceptions) on the Leased Premises in an amount equal to the aggregate principal component of unpaid Lease Payments. The Lease also requires that the City maintain casualty insurance on the Leased Premises in amount equal to replacement value and rental interruption insurance to insure against loss of Lease Payments caused by loss or damage to the Leased Prem ises covered under the City’s casualty insurance. The rental interruption insurance is to be in an amount not less than the maximum remaining scheduled Lease Payments in any future two-year period. The City also is obligated under the Lease to obtain a standard comprehensive general public liability and property damage insurance policy or policies and workers’ compensation insurance. See “THE CITY OF CUPERTINO—Risk Management” and Appendix C— “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—Risk Management” herein.

The proceeds of any rental interruption insurance will be deposited in the Lease Payment Fund, to be credited towards the payment of the Lease Payments in the order in which such Lease Payments become due and payable. The Lease requires the City to apply the Net Proceeds of any insurance award either to replace or repair the Leased Premises or to prep ay Certificates and Additional Certificates, if any, if certain certifications with respect to the adequacy of the Net Proceeds to make repairs, and the timing thereof, cannot be made. See Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS.” The amount of Lease Paymen ts will be abated and Lease Payments due under the Lease may be reduced during any period in which by reason of material damage, destruction, title defect or taking by eminent domain or condemnation of the Leased Premises there is substantial interference with the City’s use and possession of all or part of the Leased Premises. The City is not required by the Lease to maintain earthquake or flood insurance for the Leased Premises and does not make any assurances about its ability or willingness to maintain such insurance in the future. See “THE CITY OF CUPERTINO—Risk Management” and “RISK FACTORSAbatement” herein.

11 CERTIFICATE PAYMENT SCHEDULE
Lease Payments are required to be made by the City under the Lease on each Lease Payment Date for the use and possession of the Leased Premises for the pe riod commencing as of the date of delivery of the Certificates and terminating on June 1, 2030, or a later date if such date is extended as provided in the Lease.

The Interest Payment Dates with respect to the Certificates are June 1 and December 1, commencing December 1, 2020. The aggregate annual amounts of Cer tificate payments, comprising interest and principal payable to the Owners, are set forth below for each annual period ending on June 1 of the years indicated.

Bond Year
(Ending June 1) Principal Interest Total
2021 $ 2,140,000 $ 536,306.67 $ 2,676,306.67
2022 1,880,000 796,000.00 2,676,000.00
2023 1,955,000 720,800.00 2,675,800.00
2024 2,035,000 642,600.00 2,677,600.00
2025 2,115,000 561,200.00 2,676,200.00
2026 2,200,000 476,600.00 2,676,600.00
2027 2,285,000 388,600.00 2,673,600.00
2028 2,380,000 297,200.00 2,677,200.00
2029 2,475,000 202,000.00 2,677,000.00
2030 2,575,000 103,000.00 2,678,000.00
Totals $ 22,040,000 $ 4,724,306.67 $ 26,764,306.67

Source: The Underwriter

THE CITY OF CUPERTINO
General
The City is located in Santa Clara County, at the southern end of the San Francisco Bay Peninsula, approximately 11 miles northwest of San Jose and approximately 42 miles south of San Francisco. The City is bordered by the cities of San Jose, Saratoga, Sunnyvale, Santa Clara and Los Altos. The City was incorporated on October 10, 1955 as a general law city.

The City, located in the heart of the Silicon Valley , was born from a community of farmers. In 1955, when Cupertino officially became the 13th city in Sant a Clara County, its populati on was about 2,000 and its geographical area encompassed 3.79 square miles. As of January 1, 2020, the City had an estimated population of approximately 59,549 and the City limits now stretch across 13 square miles.

The City occupies the geographic center of Silicon Valley. The City is the world headquarters for major corporations such as Apple, Seagate Technology, Verigy and Durect Corporation, and houses approximately sixty high-tech firms. The City has thirteen shopping centers. In 2017, Apple opened its new corporate campus, Apple Park, which includes approximately 2.8 million square feet of office and research and development space within the City.

City departments include Administration (City Council, commissions, city manager, city attorney); Administrative Services (finance, human resources, information technology, city clerk, neighborhood watch, emergency preparedness, code enforcement); Community Development (planning, building, and economic development); Parks and Recreation; Public Works (engineering, maintenance, transportation, solid waste, and storm drain management); and Public and Environmental Affairs. Police service is provided by a City contract with the Santa Clara Co unty Sheriff’s Department, and fire service is provided by a separate taxing entity, the Santa Clara County Central Fire Protection District. Water service within the City is provided by Santa Clara

12 Valley Water District and the San Jose Water Company and sewer service is provided by Cupertino Sanitary District.

See Appendix A—"ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF CUPERTINO” for a general de scription of the City as well as certain demographic and statistical information.

See Appendix A—GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY for a general description of the City as well as certain demographic and statistical information.

City Council
The City operates under a Council-City Manager form of government. There are five council members who are elected at-large to overlapping four-year terms. The Mayor and the Vice Mayor are filled annually by election of the council members. The City Council is responsible for, among other things, establishing local law and policies through the enactment of ordinances and resolutions, adopting the City budget, appointing members to advisory municipal activities, and serving on regional committees and boards whose policies may affect the City. The members of the City Council and the expiration dates of their respective terms are as follows:

CITY OF CUPERTINO
City Council
Name Term Expires
Steven Scharf, Mayor December 2020
Darcy Paul, Vice Mayor December 2022
Liang Chao, Council Member December 2022
Rod Sinks, Council Member December 2020
Jon Willey, Council Member December 2022

The City Council appoints the City Manager who is responsible for the daily administration of City affairs. The City Council also appoints the City A ttorney and the City Treasurer. All other employees are appointed by the City Manager
City Management
A summary of certain City executive staff are described below.

City Manager. The City Manager is responsible for the day-to-day administration of the City. The City Manager’s office implements policy decisions of the City Council, provides leadership and strategic direction to the City’s leadership team and organization, as well as ensuring that initiatives and programs align with the City’s mission and reflect the values of the community. The City Manager’s office provides overall guidance to all City operating departments and is responsible for the administration of City programs to ensure the delivery of high quality services in an efficient and cost-effective manner.

The City’s current City Manager is Ms. Deborah Feng. Ms. Feng began serving as City Manager of the City in June 2019; the City Manager serves at the pleasure of the City Council. Prior to being appointed as City Manager of the City, Ms. Feng had more than 30 years of management and administration experience with the National Aeronautics and Space Administration at Ames Research Center in Moffett Field, California, where her responsibilities included working with city governments, financial management and budgeting, master planning and facilities construction, informa tion technology, human resources, partnerships and communications and outreach.. Ms. Feng holds a bachelor’s degree in Mass Communications, Radio and

13 Television from the University of California, Berkeley and a master’s degree in Business Administration from San Jose State University.

City Treasurer. The City Treasurer is charged with investing City funds, producing monthly reports to identify amounts and types of investment instruments, arranging payments on City bonds and coordinating financial transactions. The City Tr easurer is appointed by the City Council. In 2014, the City Council appointed Ms. Kristina Alfaro to the position of City Tr easurer; Ms. Alfaro also serves as the Administrative Services Director.

Kristina Alfaro was hired by the City of Cupertino in December 2012 and assumed the responsibilities of City Treasurer and Director of Administrative Serv ices in November 2014. Ms. Alfaro had previously served as the Assistant to the City Manager for the C ity. Her municipal experience also includes seven years as Associate Management Analyst with the Stanislaus County’s Chief Executive O ffice. While in Cupertino Ms. Alfaro has led the effort to modernize the City’s financial and human resource systems by replacing the City’s legacy system that had been in place for over 15 years. In addition, she led financial transparency efforts by redesigning the City’s budget document and budget process and adding a financial transparency portal. She helped to maintain the City’s strong fiscal position by implementing 115 trusts for both retiree health and pension costs and developing a strong reserve policy. Ms. Alfaro received her bachelor’s degree from San Jose State University, San Jose, California. Ms. Alfaro has over fifteen years of combined financial experience in the public sector. Professional affiliations include GFOA and CSMFO.

City Attorney. The City Attorney functions include advising the City Council and City officers in all matters pertaining to their respective offices, giving advice or opinions on the legality of all matters under consideration by the Council or by any of the boar ds, commissions, committees or officers, and preparing and/or approving all ordinances, resolutions, agreements, contracts, and other legal instruments as shall be required for the proper conduct of the business of the City and approving the form of all contracts, agreements, and bonds given to the City. The City Attorney is appoint ed by and serves at the pleasure of the City Council.

In 2019, the City Council appointed Ms. Heather Minner as a contract City Attorney. Ms. Minner is a partner with the law firm of Shute, Mihaly & Weinberger LLP. Ms. Minner has extensiv e experience representing public agency clients and frequently assists cities and local agencies in land use and administrative matters.

Ms. Minner received a bachelor’s degree in history from the University of Californi a, Berkeley, a master’s degree in urban planning from the University of California, Los Angeles, and a Juris Doctorate from the University of California Berkeley School of Law.

Employee and Employee Relations
As of June 30, 2020, the City had approximately 198 full-time equivalent employees. In accordance with the provisions of California Government Code Section 3500, the City participates in labor negotiations with its employee associations. The result of the negotiations processes are memorialized in memoranda of understanding reached between the City and the City employee associations. The ta ble below lists the City’s two employee associations and the approximate membership as of June 30, 2020, as well as the unrepresented employees:

Unit/Affiliation
Contract
Expiration
Date
Number of
Members
Cupertino Employee’s Association June 30, 2022 65
Operating Engineers Local No. 3 Union, AFL-CIO June 30, 2022 55 Unrepresented Employees Compensation Program 70
Total 190

Source: City of Cupertino.

14 The City has not experienced a strike or work stoppage in the last ten years.

Prior Employee Embezzlement
On September 5, 2018 the Santa Cl ara County Sheriff’s Office arrest ed a former City employee for her alleged role in the embezzlement of public funds. The employee is alleged to have issued and cashed numerous fraudulent checks between 2000 and 2014 for a total of $791,494. The State Attorney General’s Office has brought criminal charges against the former employee. The City is working with the Attorney General’s Office to seek maximum restitution from the former employee through the criminal proceedings.

City staff discovered the fraudulent checks in 2018, during a multi-year, detailed review of the City’s accounts following the implementation of an upgraded financial system in 2014, which was intended to strengthen the City’s internal controls.

The new financial system implemented by the City in December 2014 increased the magnitude and volume of internal controls by establishing multi-layer approvals within the system. In conjunction with the system upgrade in 2014, the City incorporated a decentralized accounting structure and hired additional accounting staff to enhance segregation of duties and implemented an internal audit function in fiscal year 2019-20. In addition, the City holds quarterly Audit Committee meetings for purposes of (1) reviewing annual audit reports and management letters, (2) recommending appointment of auditors, (3) reviewing quarterly treasurer’s reports, (4) recommending budget formats, and (5) reviewing City investment policies and internal controls of such policies.

Risk Management
General and Property Liability . The City is self-insured for the first $250,000 of general and property liability for each occurrence, and the excess (up to $10,000,000 for each occurrence and annual aggregate) is covered through the City’s participati on in Pooled Liability Assurance Network Joint Powers Authority (“PLAN JPA”) (previously the Association of Bay Area Governments Pooled Liability Assurance Network (“ABAG PLAN”)). The risk pool consists of 28 agencies within the San Francisco Bay Area. The stated purpose of the PLAN JPA is to provide certain levels of liability insurance coverage, claims management, risk management services, and legal defense to its participating members. PLAN JPA is governed by a Board of Directors, which comprises officials appointed by each participating member.

Premiums paid to PLAN JPA are subject to possible refund based on the results of actuarial studies and approval by the Board of Directors. Complete financial statements for PLAN JPA may be obtained from their offices at the following address: PLAN JPA, 1750 Creeks ide Oaks Drive, Suite 200, Sacramento, CA 95833.

Premiums are revised each year based on the City’s claims experience and risk exposure. For the years ended June 30, 2019 and June 30, 2020, the City paid PLAN JPA premiums of $482,346 and $639,636, respectively.

Workers’ Compensation Liability . The City belongs to the CSAC Excess Insurance Authority (“EIA”), a joint powers authority which provides exce ss workers’ compensation liability claims coverage above the City’s self-insured retention of $500,000 per occurrence. Losses above the self-insured retention are pooled with excess reinsurance purchased to a $50,000,000 statutory limit. EIA was established in 1979 for the purpose of creating a risk management pool for all California public entities. EIA is governed by a Board of Directors consisting of representati ves of its member public entities. Complete financial statements for ETA may be obtained from their offices at the following address: CSAC Excess Insurance Authority, Finance Department, EIA 75 Iron Point Circle, Suite 200, Folsom, CA 95630. For the years ended June 30, 2019 and June 30, 2020, the City paid EIA premiums of $126,079 and $123,313, respectively.

It is the City’s practice to obtain biennial actuaria l studies for the self-insured workers’ compensation liability. The claims liabilities included in the workers’ compensation internal service fund is based on the results of actuarial studies and include amounts for claims incurred but not reported and loss adjustment expenses. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends,

15 including frequency and amount of payouts, and other economic and social factors. Inflation of 2.5%, annual rate of return of 2.0%, claim severity increase at 2.5% were assumed. In the year ended June 30, 2019, management used actuarial estimates based on a 90% confidence level.

Settled claims have not exceeded any of the coverage described above in any of the past five fiscal years. For additional information with respect to the City’s risk management program and EIA, see Note 9 to the City’s audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.

CITY FINANCIAL INFORMATION
COVID-19 Pandemic Impact
General. The spread of the novel strain of coronavirus called SARS-CoV-2 that causes the disease known as COVID-19 (“COVID-19”), and local, state and federal actions in response to COVID-19, are having a significant impact on the economy and on the City’s operations and finances. In response to the increasing number of cases of COVID-19 and fatalities, health officials and experts have recommended, and some governments have mandated, a variety of responses ranging from travel bans and social distancing practices, to complete shut-downs of certain services and facilities. On March 4, 2020, as part of the State’s response to address the outbreak, the Governor d eclared a state of emergency. On March 13, President Donald Trump declared a national emergency, freeing up funding for federal assistance to state and local governments. On March 19, 2020, the Governor issued Executive Order N-33-20, a mandatory statewide shelter-in-place order applicable to all non-essential services.

In May 2020, the Governor outlined a phased approach to re-opening businesses in California. As a result of State and local actions taken to slow the spread of COVID-19, a number of businesses have had to close and other businesses, such as restaurants, have been permitted to stay open subject to certain conditions.

These circumstances, among other market factors, have led to increased unemployment since the beginning of the COVID-19 outbreak in the United States. In addition to increased unemployment, financial markets in the United States and globally have been volatile, with significant declines attributed to coronavirus concerns.

On July 13, 2020, the Governor issued another order requiring all counties within the State to close indoor operations in certain sectors, including dine-in restaurants, wineries and tasting rooms, movie theatres, family entertainment centers, zoos and museums and cardrooms. The Governor’s July 13, 2020 order also required certain counties on the Governor’s Monitoring List, including the County, to shut down additional industries and activities, including gyms and fitness center s, places of worship and cultural ceremonies (such as wedding and funerals), offices for non-critical infrastructure sectors, personal care services (such as nail salons, body waxing and tattoo parlors) and shopping malls.

On August 28, 2020, the State released further guidance regarding re-opening certain types of businesses based on a county-by-county approach where each county is assigned a tier based on COVID-19 case rates within each County. Based on the initial asse ssment from the State, Santa Clara County was in Tier 1 (“Widespread”). As of September 8, 2020, the County had been moved to Tier 2 (“Substantial”). For counties in Tier 2, previously re-opened indoor busin esses (such as retail stores, shopping malls, hair salons and grocery stores) may remain open, with certain modifi cations and increased capacity, and certain additional indoor business (such as gyms and personal care) may open with modifications, such as limitations on capacity. While the State allows counties in Tier 2 to re-open indoor dining and movie theaters, the County’s local health order requires these indoor operations to remain closed. If the County remains in Tier 2 for 14 days, then K-12 schools may re-open for in-person instruction with certain restrictions.

While the effects of COVID-19 may be temporary, the outbreak and governmental actions responsive to it are altering the behavior of businesses and people in a manner that is having significant negative impacts on global and local economies. In addition, stock markets in the U.S. and globally have seen significant volatility attributed to coronavirus concerns. CalPERS has reportedly lost significant value in its investments

16 as a result of declines in the stock market and elsewhere, which could result in a significant increase in the City’s unfunded pension liability and future pension costs, commencing in fiscal year 2022-23. See the caption “—Retirement System.” The outbreak has result ed in increased pressure on State finances, as budgetary resources are directed towards containing th e pandemic and tax revenues sharply decline. The COVID-19 outbreak is expected to result in material de clines in major General Fund revenues. In addition, Governor Newsom extended the deadline to file and pay first quarter sales and use tax returns by 90 days for all but the very largest taxpayers, and up to 361,000 California businesses with less than $5 million in taxable annual sales will be allowed to defer up to $50,000 in sales tax and enter into 12-month payment plans at zero interest. This will result in delays in the receipt by the City of its portion of the delayed payments.

Since the onset of the COVID-19 pandemic, the County Health Officer has issued a series of orders regulating activities throughout the County, including within the City. The County’s orders have been more strict in certain respects than federal guidelines and state orders related to COVID-19. The County’s July 2, 2020 order continues to urge all County residents to stay home as much as possible, requires workers to do their jobs from home whenever possible, and prohibits indoor dining and bars, but permits certain indoor gatherings (up to 20 people) and outdoor gatherings (up to 60 people).

Impacts on the City. In response to the pandemic, the City has taken actions to activate its emergency operations center, temporarily close all non-essential City services, introduce teleworking as and where appropriate, and abide by all federal, state, and regional orders. The City actively monitors the COVID-19 situation in the community and acts swiftly to issue additional emergency orders to mitigate both the spread of the virus and economic impacts to the community.

In an effort to assist residential tenants and small business commercial tenants, the County temporarily banned evictions for non-payment of rent or no-fault evictions when the tenant has suffered a substantial loss of income and/or substantial out-of-pocket medical expense due to the COVID-19 pandemic. The County's eviction moratorium expired August 31, 2020. Based on the County’s evaluation of the State’s August 31, 2020 state-wide eviction and foreclosure protections, the County may extend or revise its legislation.

The City has also taken certain measures to protect and mitigate impacts to the public and businesses in the community, including adoption of emergency orders requiring individuals to wear a face covering when they need to leave their home to work or obtain essential goods and services; allowing outdoor dining and retail services with a special permit; adoption of an urgency ordinance to extend certain permit deadlines and requirements; offering loans and grants to income-qualified Cupertino residents to assist with residential rental payments; and establishing a small business emergency relief grant program . The City is considering orders to waive sign fees and permit requirements for retail and restaurant “open for business” signs.

As a result of COVID-19, the City forecasts a budget deficit in fiscal year 2020-21. The City has also identified significant unfunded needs in its Capital Improvement Program (CIP), including substantial investments in the City’s capital infrastructure. In response, the City has implemented several budget balancing strategies, including: reduced recreation programming; hiring freeze, with limited exceptions; furloughing approximately 65% of temporary staffing, approximately 80 positions; limiting travel and training; and reducing various other expenditure categories including materials, contracts, contingencies, and special projects. Additional measures that the City is considering include: continue to reduce recreation programming; reduce library hours and/or programmi ng; longer planning, code enforcement, and public safety response times; fewer community events and grants; reduced or deferred capital infrastructure maintenance; reduced administrative staff and continued evaluation of staffing needs.

On March 27, Congress passed and the President signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Stabilization Act (“CARES Act”) that provides, among other measures, $150 billion in financial assistance to states, tribal governments and local governments to provide emergency assistance to those most significantly impacted by COVID-19. The City expects to receive approximately $735,259 in CARES Act funds through the State by the end of calendar year 2020.

17 See the caption “—Budget Procedure, Current Budget and Historical Budget Information” herein for a discussion of the City’s fiscal year 2020-21 Adopted Budget and the potential impacts of COVID-19 on City finances.

Accounting and Financial Reporting
The City’s basic financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The Govern ment Accounting Standards Board (“GASB”) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States.

The government-wide, proprietary and fiduciary fina ncial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.

Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt which are recognized as expenditures to the extent the City has provided financial resources to a debt service fund for payment of these liabilities that mature early in the following year. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds from long-term debt and acquisitions under capital leases are reported as other financing sources.

Unearned revenues are considered on a full accrual basis, while unavailable revenues are based on the modified accrual measure.

Property taxes, transient occupancy taxes, utility taxes, franchise taxes, interest and special assessments are susceptible to accrual. Other receipts and taxes are recognized as revenue when the cash is received. Sales taxes collected and held by the state at year end on behalf of the C ity are also recognized as revenue. Sales tax consultant payments which are contingent on revenues collected are netted against the related revenues.

Under the terms of grant agreements, the City may fund certain programs with a combination of cost reimbursement grants, categorical bloc k grants, and general revenue. The City’s policy is to first apply restricted grant resources to such programs, followed by general revenues if necessary. Grant revenues are recognized after eligibility and billing occurs, but may be a deferred inflow if not received within sixty days of year-end. Because of the cost-reimbursement and recognition nature of some grants, certain capital project funds may carry deficit fund balances until billing and receipt of grants. The City may also front the capital outlays with cash advances from other funds.

Non-exchange transactions, in whic h the City gives or receives valu e without directly receiving or giving equal value in exchange, incl ude property taxes, grants, entitlements, and donations. On the accrual basis, revenue from property taxes is r ecognized in the fiscal year for whic h the taxes are levied or assessed.

Revenue from grants is recognized as described above. Entitlement and donation revenues are recognized when cash is received.

The General Fund is the general operating fund of the City and is used to account for all financial resources except those that are requir ed to be accounted for in another f und. The City expects to pay Lease Payments from amounts in the General Fund. Tables 1 through 3 below set forth certain historical and current fiscal year budget information for th e General Fund. Information on the other governmental funds of the City as of June 30, 2019 is set forth in Appendix B.

18 City Blended Component Units and Fiduciary Component Units General. Under GASB guidelines, component units of a primary government (i.e. the City) generally include those that are legally separate entities but raise and hold economic resources for the direct benefit of the primary government. Blended component units, although separate legal entities are, in substance, part of the government’s operations and their funds are treate d similarly to funds of the primary government (other than the General Fund). Fiduciary component units are those with assets administered through a trust in which the primary government is not the beneficiary, the assets are dedicated to provide benefits to recipients and the assets are legally protected.

The City’s blended component units which have or will have outstanding obligations and City’s fiduciary component units, are described below.

Blended Component Unit . The Corporation was incorporated in May 1986, under the Nonprofit Public Benefit Corporation Law of the State. The Corp oration was organized as a nonprofit corporation solely for the purpose of assisting the City in the acquisitio n, construction, and financing of public improvements which are of public benefit to the City. The Corporation, after acquiring certain properties from the City, leases these back to the City. The lease money provides the funds for the debt service for the Certificates of Participation issued by the Corporation to acquire the properties. The Corporation does not issue separate financial statements, since it is reported separately in the City’s basic financial statements.

Fiduciary Component Unit . The City participates in the Public Agency Retirement System (“PARS”) Public Agencies Post-Retirement Health Ca re Plan Trust Program (“PARS Trust”), an agent- multiple employer irrevocable trust established to fund other postemployment benefits. The PARS Trust functions for the benefit of the employees. The City funds all PARS Trust costs based on actuarial valuations for its specific portion of the PARS Trust as opposed to the PARS Trust as a whole.

Effective July 1, 2016, the City reported in its fidu ciary fund financial statements the PARS Trust that pertains to the City as well as other post-employment benefit payments of the City’s other post-employment benefits plan initiated by the City but reimbursed to the PARS Trust and required to be recognized under applicable standards due to a change in the reporting entity. With the implementation of GASB Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans , the City reviewed the PARS Trust separately issued financial statements and determined that inclusion of the City OPEB Plan component unit financial statements and related disclosures as a City trust fund were necessary as omission would have been misleading. For discussion of the City’s OPEB Plan, see the caption “—Other Post- Employment Benefits” and Note 11 to the audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.

Financial Policies
General. The City has adopted a comprehensive set of financial policies to serve as a guideline for financial matters as further described below.

Reserves Policy. The City has adopted a committed, unassigned fund balance and use of one time funds policy (the “Reserve Policy”) for the purpose of meeting the City’s goal of maintaining sufficient committed and unassigned fund balances in each fund for the ability to meet certain economic uncertainties.

The City has adopted the following reserves: (i) an Economic Uncertainty reserve, to be used in case of economic downturns and major revenue changes; (ii) a CalPERS Pension Rate Stabilization Program, to assist in stabilizing the potential impact of pension cost volatility on the City’s operating budget; (iii) an OPEB Reserve, to assist in stabilizing the potential impact of OPEB cost volatility on the City’s operating budget; (iv) a Sustainability Reserve with respect to the City’s Climate Action Plan, with funds to be used to provide residents, business and schools with programs and services focused on energy efficiency, renewable energy, water conservation, alternative transportation and other sustainable actions; (v) Unassigned reserves to absorb

19 unanticipated operating needs or unexpected claims or litigation settlements; and (vi) a Capital Improvements reserve (the “Capital Reserve”) to meet future capital project needs so as to minimize future debt obligations.

The following table shows the City’s Reserve Policy amounts for fiscal year 2020-21 and the fund balances as of June 30, 2020 for each of the reserves described above.

Funding
Priority Reserve
Target Reserve
Level
Balance
as of June 30, 2020 Escalator
General Fund
1 Economic
Uncertainty
$ 19,000,000 $ 19,000,000 General Fund budgeted operating expenditures (exclusive of interfund transfers) and General
Fund budgeted revenues
2 CalPERS $ 12,000,000 $ 12,725,224 Budgeted City-wide retirement costs 3 OPEB N/A $ 29,370,249
4 Sustainability
Reserve
N/A $ 127,891 General Fund budgeted revenue (excluding the use of reserves)
5 Unassigned $ 500,000 $ 28,420,987 Budge ted General Fund operating expenditures Capital Project Funds
6 Capital
Improvement
$ 5,000,000 $ 5,000,000 None

Debt Management Policy. The City has adopted a debt management policy (the “Debt Management Policy”) in compliance with California Government Code Section 8855. The Debt Management Policy sets forth the purposes for which long-term debt financings may be undertaken (i.e. for projects that will provide benefit to constituents over multiple years). The Debt Management Policy provides that short-term financings may be undertaken for operational cash flow purposes and for short-lived capital projects (i.e. equipment leases). The City’s Debt Management Policy is implemented in conjunction with annual budgeting and the City’s capital improvement program.

Investment Policy. The City invests its funds in accordance with the City’s investment policy (the “Investment Policy”). In accordance with Section 53600 et seq. of the California Government Code, idle cash management and investment transactions are the responsib ility of the City Treasurer. The City’s Investment Policy sets forth the policies and procedures applicable to the investment of City funds and designates eligible investments. The Investment Policy sets forth a stated objective, among others, of ensuring the safety of invested funds by limiting credit and market risks. Funds are invested in the following order of priority:
 Safety of Principal;
 Liquidity; and
 Return on Investment.

Eligible investments are generally limited to managed investment pools, including the Local Agency Investment Fund which is operated by the California State Treasurer, U.S. Treasury bills, notes and bonds, federal agency or United States government sponsored enterprise obligations, medium term corporate notes, commercial paper rated A1/P1, as applicable, or better , repurchase agreements with counter-party ratings of “AA” or its equivalent or better, and mutual funds as authorized by State law.

The City Treasurer is required to provide a quarterly report to the City Manager and the City Council showing the type of investment, date of maturity, amount invested, current market value, rate of interest, and other such information as may be required by the City Council. At June 30, 2020, the City had an investment portfolio with a market value of approximately $110 million. As of such date, the City had invested approximately, 33% of its investment portfolio in fede ral agencies, 25% in U.S. Treasuries, and 26% of its

20 investment portfolio in corporate securities. For additional information with respect to the City’s cash and investments, see Note 2 to the audited financial statemen ts for fiscal year 2018-19 attached to the Official Statement as Appendix B.

Major Revenues and Expenses
Revenues. The City derives its General Fund revenues from a variety of sources including ad valorem property taxes, sales taxes, licenses, permits, transien t occupancy taxes, charges for services provided by the City and other miscellaneous revenues. The City’s total General Fund revenues for selected major revenue sources for the past five fiscal years are set forth below.

TABLE 1

CITY OF CUPERTINO

SELECTED MAJOR REVENUE SOURCES
Revenue Category 2015-16 2016-17 2017-18 2018-19 2019-20 (1) Percentage (3) Property Taxes(2) $ 18,194,463 $ 20,219,077 $ 22,433,805 $ 25,301,095 $ 26,606,844 29.30% Sales Taxes 21,350,056 26,932,012 26,164,531 24,901,779 26,651,250 29.35% Transient Occupancy Taxes 5,852,244 6,023, 681 6,810,718 8,901,337 7,286,083 8.02% Charges for Services 16,848,153 23,708,304 14,972,627 12,644,413 11,955,401 13.17% Licenses and Permits 3,073,110 2,356,925 2,757,928 4,102,665 4,692,845 5.17% Total $ 65,318,026 $ 79,239,999 $ 73,139,609 $ 75,851,289 $ 77,192,424 85.01%

(1) Fiscal year 2019-20 amounts represent unaudited actual results. (2) Inclusive of Department of Motor Vehicles license fees. See “—Property Taxes” below. (3) Percentage of total fiscal year 2019-20 General Fund revenues.

Source: City of Cupertino.

Expenses. The City’s major General Fund two largest expenditure categories for fiscal year 2019-20 were expenditures for Public Works and Law Enforcement (which is comprised mostly of the City’s contract with Santa Clara County to provide police services for the City), which accounted for approximately 29.6% and 21.9%, respectively, of General Fund expenditures. In fiscal year 2020-21, approximately 32.6% and

20.9% of budgeted General Fund expenditures are for Public Works and Law Enforcement expenditures, respectively. See the caption “—Budget Procedure, Current Budget and Historical Budget Information” herein.

Other major General Fund expenditures include administration (which includes the City’s costs associated with the City’s retirement system and other post-employment benefit plan described under the captions “—Retirement System” and “O ther Post-Employment Benefits”) and expenditures for community development activities. Administration and community development expenditures comprised approximately

10.8% and 13.1% of total fiscal year 2019-20 General Fund expenditures, respectively, and are budgeted to comprise approximately 13.1% and 13.9% of fiscal year 2020-21 General Fund expenditures, respectively.

Budget Procedure, Current Budget and Historical Budget Information The City’s annual operating budget is prepared on a July 1 to June 30 fiscal year basis. However, the budget process is an ongoing process that occurs throughout the year and includes phases of development, proposal, adoption, monitoring and amendment.

The budget development phase begins in December w ith the preparation of budget instructions and work program development by the City Council and City Manager. During March, departments prepare the budgets for which they are responsible. These proposed department budgets are reviewed by the City’s Finance Division using current and prior year trends data. The City Manager then reviews the proposals with the Director of Administrative Services and departmental staff and makes final decisions which form the basis

21 of the City Manager’s proposed budget. The City Manager’s proposed budget is then submitted to the City Council in May.

During the months of May and June, the City Council considers the budget proposals at a study session and public hearing. At these times, the C ouncil hears from the City’s boards and commissions, community groups and the public regarding budget requests and recommendations. The adopted budget is adopted by resolution in June and takes effect on July 1.

After the annual budget is adopted, the City enters the budget monitoring phase. Throughout the year, expenditures are monitored by the Finance Division staff and department managers to ensure that funds are used in an approved manner. Adjustments to expenditures within or between departmental budgets are accomplished on an as-needed basis administratively throughout the year. The City Manager and department heads can transfer funds between their line items and/or divisions as needed.

City Council approval is required for additiona l appropriations from fund balances or from new revenue sources.

The annual budget for fiscal year 2020-21 was approved on June 16, 2020 (the “Adopted Budget”).

The Adopted Budget projects General Fund revenues in fiscal year 2020-21 to be approximately $79.1 million, a decrease of approximately $8 million or 9.2% from the fiscal year 2019-20 adopted budget.

The Adopted Budget projects: (i) an increase in property tax revenues of approximately $0.6 million, (ii) a decrease in sales tax revenues of approximately $4.7 million; and (iii) a decrease in transient occupancy tax of approximately $2.1 million, in each case as comp ared to the fiscal year 2019-20 adopted budgeted amounts. The Adopted Budget projects General Fund e xpenditures of $80.5 million in fiscal year 2020-21, which is an approximately $0.4 million increase from the fiscal year 2019-20 adopted budget.

The Adopted Budget also includes certain adjustments to the City’s proposed budget in light of the impacts of the COVID-19 pandemic, including phasing in an increase of vacant staff positions from five to 20 within a three-year period, which is expected to result in approximately $3.2 million in annual savings; reducing contingencies by 50%, which is expected to save approximately $850,000; reducing materials by 10%, which is expected to save approximately $670,000 in fiscal year 2020-21; reducing contract services by $1 million; reducing special projects by $500,000; reducing capital outlays by 60%; and reducing transfers out by $1.2 million.

Set forth in Table 2 below are the adopted General Fund budgets for fiscal years 2018-19, 2019-20 and 2020-21, the actual audited results for fiscal year 2018-19 and the unaudited actual results for fiscal year 2019-20. The General Fund budgets and actuals shown in Table 2 below do not reflect the application of GAAP and therefore differ in certain respects to th e audited General Fund Statement of Revenues, Expenditures and Change in Fund Balance shown in Table 3 below.

22 TABLE 2

CITY OF CUPERTINO
GENERAL FUND BUDGETS TO ACTUAL COMPARISONS (ON A BUDGETARY BASIS)(1)

Adopted
Fiscal Year
2018-19
Budget
Fiscal Year
2018-19 Audited
Results
Adopted Fiscal
Year 2019-20
Budget
Unaudited
Actual Fiscal
Year 2019-20
Results(2)
Adopted Fiscal
Year 2020-21
Budget

REVENUES
Taxes $ 62,047,000 $ 67,299,302 $ 64,386,061 $ 65,128,267 $ 58,248,207 Use of money and property 692,000 2,654,331 1,330,579 2,865,334 1,246,510 Intergovernmental 326,000 473,942 354,547 747,942 335,567 Licenses and permits 2,685,000 4,102,665 2,524,000 4,692,845 3,139,473 Charges for services 10,269,276 12,644,413 13,233,225 11,955,401 11,091,064 Fines and forfeitures 615,000 511,471 615,000 327,833 425,000 Other revenue 244,200
1,102,320 4,644,740 5,088,017 4,559,304
Amounts available for appropriation $ 76,878,476 $ 88,788,444 $ 87,088,152 $ 90,805,639 $ 79,045,125

CHARGES FOR APPROPRIATION
(OUTFLOWS)

Current
Administration $ 6,883,713 $ 6,292,611 $ 7,554,703 $ 6,957,217 $ 9,218,655 Law enforcement 12,988,353 13,108,632 14,077,937 14,151,412 14,792,448 Innovation and technology 3,397,490 2,843,540 3,378,697 3,556,368 1,981,299 Administrative services
4,606,561 4,197,582 4,790,420 4,652,598 4,955,568 Parks and recreation 10,614,583 8,996,118 8,579,403 7,688,940 6,804,768 Community development 8,332,883 8,554,055 9,604,789 8,443,767 9,801,449 Public Works 17,831,725 17,667,775 21,578,962 19,156,660 23,025,616 Capital outlay
1,625,500 1,353,691 -- -- --
Total charges for appropriations $ 66,280,808 $ 63,014,104 $ 69,564,911 $ 64,606,962 $ 70,579,803

EXCESS OF REVENUES OVER
EXPENDITURES $ 10,597,668 $ 25,774,340 $ 17,523,241 $ 26,198,677 $ 8,465,322

OTHER FINANCING SOURCES (USES)
Proceeds from sale of capital assets -- $ 3,875 -- -- -- Transfers in $ 10,000 10,000 $ 12,000 $ 10,012,000 $ 15,000 Transfers (out) (11,358,912) (19,376,212) (10,539,557) (30,892,319) (9,948,689) Total other financing sources (uses) $ (11,348,912) $ (19,362,212) $ (10,527,557 $ (20,880,319) $ (9,933,689

NET CHANGE IN FUND BALANCE $ (751,244) $ 6,412,128 $ 6,995,684 $ 5,318,358 $ (1,468,367)

(1) This Table 2 is presented using the budgetary basis of accounti ng and does not reflect the application of GAAP. Certain actu al results for fiscal years 2018-19 and 2019-20 differ from Table 3 below. (2) Fiscal year 2019-20 amounts represent unaudited actual results.

Source: Audited Financial Statements for fi scal year 2018-19; the City for fiscal year 2020-21; Adopted Budget of the City for fiscal year 2020-21.

23 Comparative Change in Fund Balance of the City General Fund The table below presents the City’s audited General Fund Statement of Revenues, Expenditures and Change in Fund Balance for fiscal years 2015-16 through 2018-19 and unaudited actual results for fiscal year 2019-20.

TABLE 3

CITY OF CUPERTINO GENERAL FUND STATEMENT OF

REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE
2015-16 2016-17 2017-18 2018-19 2019-20 (1)

REVENUES
Taxes $ 54,786,297 $ 62,648,633 $ 63,459,132 $ 67,299,302 $ 65,128,267 Use of money and property 1,362,393 1,173,095 1,325,814 2,654,331 2,865,334 Intergovernmental 428,992 330,108 1,000,776 473,942 747,942 Licenses and permits 3,073,110 2,536,925 2,757,928 4,102,665 4,692,845 Charges for services 16,848,153 23,708,304 14,972,627 12,644,413 11,955,401 Fines and forfeitures 558,516 593,123 575,032 511,471 327,833 Other revenue 799,587 1,822,766 1,015,227 1,102,320 5,088,017 Total revenues $ 77,857,048 $ 92,812,954 $ 85,106,536 $ 88,788,444 $ 90,805,639

EXPENDITURES
Current
Administration $ 4,052,241 $ 5,936,337 $ 4,919,262 $ 6,292,611 $ 6,957,217 Law Enforcement 10,988,735 11,939,095 12,362,621 13,108,732 14,151,412 Public and environmental affairs 544,718 1,864,746 2,835,768 2,843,540 3,556,368 Administrative services 2,811,117 5,054,539 4,430,300 4,197,582 4,652,598 Recreation services 5,441,200 9,361,934 8,686,076 8,996,118 7,688,940 Community development 5,248,841 6,433,422 8,365,234 8,554,055 8,443,767 Public works 13,115,155 16,484,844 15,820,836 17,667,775 19,156,660 Capital outlay 9,657,394 7,999,577 7,762,733 1,353,691 -- Total expenditures $ 51,859,401 $ 65,074,494 $ 65,182,830 $ 63,014,104 $ 64,606,962

EXCESS (DEFICIENCY) OF REVENUES OVER
EXPENDITURES $ 25,997,647 $ 27,738,460 $ 19,923,706 $ 25,744,340 $ 26,198,677

OTHER FINANCING SOURCES (USES)
Proceeds from sale of capital assets $ 580 -- $ 872,250 $ 3,875 -- Transfers in
36,015 $ 31,411 2,254,183 10,000 $ 10,012,000
Transfers out(2) (13,163,945) (26,609,358) (24,129,372) (19,376,087) (30,892,319) Total other financing sources (uses) $ (13,127,350) $ (26,343,610) $ (21,002,939) $ (19,362,212) $ (20,880,319)

Net Change in Fund Balances $ 12,870,297 $ 1,394,850 (1,079,233) $ 6,412,128 $ 5,318,358 Fund Balances (Deficits) – July 1 39,324,543
52,194,840 53,589,690 52,510,457 58,922,585
Fund Balances (Deficits) – June 30 $ 52,194,840 $ 53,589,690 $ 52,510,457 $ 58,922,585 $ 64,240,943

(1) Fiscal year 2019-20 amounts represent unaudited actual results. (2) Transfers out generally include transfers to fund capital projects, annual lease paym ents with respect to the 2012 Certificates and other miscellaneous transfers. See Note 4 the audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.

Source: Audited Financial Statements for fiscal years 2015-16 through 2018-19; City for fiscal year 2019-20.

24 Comparative General Fund Balance Sheets of the City
The table below presents the City’s audited General Fund Balance Sheets for fiscal years 2015-16 through 2018-19 and unaudited actual results for fiscal year 2019-20.

TABLE 4

CITY OF CUPERTINO

GENERAL FUND BALANCE SHEETS

FIVE YEAR COMPARISON
2015-16 2016-17 2017-18 2018-19 2019-20 (1)
ASSETS
Cash and investments $ 54,282,490 $ 62,119,171 $ 63, 889,867 $ 57,426,973 $ 62,029,471 Restricted cash and investments -- -- -- 8,109,521 12,725,224 Receivables
Accounts 11,181,310 2,953,906 2,837,425 3,320,100 2,946,471 Interest 52,606 94,152 163,067 363,945 70,265
Loans 868,608 851,714 458,893 454,188 449,341
Due from other funds 450,220 1,400,000 307,056 441,326 441,326 Advance to other funds
(2) -- -- -- -- 3,000,000
Other assets(3) 72,657 25,613 3,884 3,884 3,884 Total Assets $ 66,907,891 $ 67,448,052 $ 67,666,192 $ 70,119,937 $ 81,665,982

LIABILITIES
Accounts payable and accruals $ 4,794,690 $ 2,861,179 $ 3,664,488 $ 2,975,447 $ 4,208,314 Accrued payroll and benefits 15,649 224,346 912,107 882,414 1,405,270 Due to other funds -- -- -- -- --
Deposits 9,747,271 10,663,048 10,479,925 7,066,073 11,605,717 Unearned revenue 155,441 109,789 99,125 273,418 205,739 Total liabilities $ 14,713,051 $ 13,858, 362 $ 15,155,735 $ 11,197,352 $ 17,425,040

FUND BALANCES
Nonspendable $ 937,381 $ 876,939 $ 464,893 $ 454,188 $ 449,341 Restricted 888,374 1,016,771 1,254,578 9,469,670 14,324,757 Committed -- 19,000,000 19,122,754 19,123,397 19,127,891 Assigned 20,500,000 4,638,181 9,963,310 1,979,202 1,979,202 Unassigned 29,869,085 28,057,799 21,704,922 27,896,128 28,359,751 Total fund balances $ 52,194,840 $ 53, 589,690 $ 52,510,457 $ 58,922,585 $ 64,240,942

Total liabilities and fund balances $ 66,907,89, $ 67,448,052 $ 67,666,192, $ 70,119,937 $ 81,665,982

(1) Fiscal year 2019-20 amounts represent unaudited actual results. (2) Represents an advance from the General Fund to the Capital Im provement Program Capital Projects Fund to provide further funding for the City’s Library Expansion Project. Such advance is scheduled to be repaid to the General Fund within three years. (3) Includes certain prepaid items for fiscal years 2015-16 through 2017-18.

Source: Audited Financial Statements for fiscal years 2015-16 through 2018-19; City for fiscal year 2019-20.

Capital Improvement Program
The City adopts an annual capital improvement program (“CIP”) that covers the current and next succeeding four fiscal years an d serves as the City’s short and long-term plan for capital projects. Each fiscal year, the CIP is funded by the Capital Reserve and/or re stricted grant and donation proceeds. The fiscal year 2020-21 adopted CIP budgets for expenditures of $2.2 million, or $23.5 million lower than the fiscal year 2019-20 adopted CIP. In addition to uncertainty surrounding the COVID-19 pandemic, this reduction is also due to a minimal remaining fund balance in the Capital Reserve. While the City’s policy to transfer excess fund balance in the General Fund to the Capital Reserve remains effective, the impacts from COVID-19 will create competing interests for use of those excesses.

25 The City’s adopted fiscal year 2020-21 CIP totals approximately $2.2 million, including $2.2 million in newly adopted appropriations and $52.1 million in remaining appropriations from prior years. The projects include upgrades and/or new construction of genera l City facilities, park improvements, storm drain improvements, sanitary sewer projects and street and traffic projects. A summary of the major projects included in the adopted fiscal year 2020-21 CIP and the fiscal year 2020-21 appropriated amounts for such projects are shown in the table below.

Property Taxes
During fiscal years 2018-19 and 2019-20, propert y tax receipts of approximately $25.3 million and $26.6 million, respectively, were received by the City, contributing approximately 28.5% and 29.3% of total General Fund revenues in fiscal years 2018-19 and 2019-20, respectively. The City has budgeted to receive approximately $25.3 million during fiscal year 2020-21. The City also received a portion of Department of Motor Vehicles license fees (“VLF”) collected statewid e. Several years ago, the statewide VLF was reduced by approximately two-thirds. However, the State continued to remit to cities and counties the same amount that those local agencies would have received if the VLF had not been reduced, known as the “VLF backfill.” The State VLF backfill was phased out, and as of fiscal year 2011-12, all of the VLF is now received through an in- lieu payment from State property tax revenues. In California, property which is subject to ad valorem taxes is classified as “secured” or “unsecured.” The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer.

Every tax which becomes a lien on secured property has prio rity over all other liens, arising pursuant to State Law, on the secured property, regardless of the time of th e creation of other liens. The valuation of property is determined as of January 1 each y ear, and installments of taxes levi ed upon secured property are due November 1 and February 1 and become delinquent on the following December 10 and April 10, respectively.

Taxes on unsecured property are due July 1, and become delinquent August 31.

Secured and unsecured properties are entered sepa rately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing th e taxes of the State for the amount of taxes that are delinquent. The taxing authority has four methods of co llecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s Office in order to obtain a lien on certain property of the taxpayer, and (4) seizure and sale of personal property, improvement or possessory interest belonging or taxable to the assessee.

A ten percent penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, beginning on the July 1 following a delinquency, interest begins accruing at the rate of 1 1/2% per month on the amount delinquent. Such property may thereafter be redeemed by the payment of the delinquent taxes and the ten percent penalty, plus interest at the rate of 1 1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A ten percent penalty also applies to the delinquent taxes or property on the unsecured roll, and further, an additional penalty of 1 1/2% per month accrues with respect to such taxes beginning on the varying dates related to the tax billing date.

Legislation enacted in 1984 (Section 75 et seq. of the Revenue and Taxation Code of the State of California), provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previ ously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new assessment for up to 14 months. Collection of taxes based on supplemental assessments occurs throughout the year. Taxes due are prorated acco rding to the amount of time remaining in the tax year,

26 with the exception of tax bills dated January 1 through May 31, which are calculated on the basis of the remainder of the current fiscal year and the full 12 months of the next fiscal year.

In the past, the State Legislature has shifted property taxes from cities, counties and special districts to the Educational Revenue Augmentation Fund. The term “ERAF” is often used as a shorthand reference for this shift of property taxes. In 1992-93 and 1993-94, in response to serious budgetary shortfalls, the State Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts. The 2004-05 State budget included an additional $1.3 billion shift of property taxes from certain local agencies, including the City, to occur in fiscal years 2004-05 and 2005-06. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Proposition 1A” and “—Proposition 22” herein for a description of certain limitations on the State’s authority over local government revenue sources.

The table below sets forth the secured and unsecured assessed valuations, net of exemptions, for property in the City for the fiscal years 2011-12 through 2020-21.

TABLE 5

CITY OF CUPERTINO

ASSESSED VALUATION
FISCAL YEARS 2011-12 THROUGH 2020-21
Fiscal Year Local Secured Unsecured
SBE Non-
Utility Total
2011-12 $13,219,574,367 $ 527,310,319 $1,390,000 $13,748,274,686 2012-13 13,882,147,291 738,243,050 1,390,000 14,621,780,341 2013-14 15,391,656,690 813,117,019 1,390,000 16,206,163,709 2014-15 16,133,637,244 965,141,148 -- 17,098,778,392
2015-16 18,308,720,226 1,086,786,901 -- 19,395,507,127
2016-17 20,196,258,418 1,150,311,942 -- 21,346,570,360
2017-18 22,024,906,420 1,114,123,426 -- 23,139,029,846
2018-19 23,402,123,229 1,779,936,377 -- 25,182,059,606
2019-20 24,370,718,536 1,641,863,322 -- 26,012,581,858
2020-21 25,397,331,860 2,423,984,683 -- 27,821,316,543

Source: County Assessor-County Clerk-Recorder.

The County operates under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”). Under the Teeter Plan local taxing entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the Co unty. The City’s share of the ad valorem property tax levy is included in the County’s Teeter Plan. As a result, the City current ly receives 100% of such levy and is not impacted by delinquencies in payment. However, the County may choose to discontinue to the Teeter Plan at any time.

The 10 largest property taxpayers in the City for fiscal year 2018-19 based on total assessed valuation, the land use and the percentage of the City’s total assessed value attributable to each are shown in the below table. The information in Table 6 has been obtained from third-party sources and is included for general information purposes only. The City has not verified the information in Table 6 and does not guarantee the accuracy of such information.

The largest property taxpayer in the City, Apple, has been based in the City since 1977. In 2017, Apple opened its new world headquarters campus, representing an investment of billions of dollars into the City.

27 TABLE 6

CITY OF CUPERTINO

TEN PRINCIPAL TAXPAYERS

Property Owner
2019-20 Assessed
Valuation
% of
Total(1)

1. Apple Computer Inc. $ 6,191,911,133 23.80%

2. Main Street Cupertino 396,065,000 1.52
3 Vallco Property Owner LLC 339,916,857 1.31

4. Cupertino City Center 201,051,525 0.77

5. BVK Perimeter Square Retail LLC ET AL 181,321,407 0.70

6. Cupertino Property Development LLC 180,164,643 0.69

7. Mission West Properties LP II ET AL 140,416,937 0.54

8. PR Cupertino Gateway LLC 130,693,479 0.50

9. Markham Apartments LP 104,481,230 0.40

10. Cupertino Hotel Owner LLC 97,799,908 0.38
$ 7,963,822,119 30.62%

(1) 2019-20 Local Assessed Valuation (secured and unsecured): $26,012,581,858.

Source: HdL, Coren & Cone.

Sales Taxes
During fiscal years 2018-19 and 2019-20, sales tax receipts of approximately $24.9 million and $26.7 million, respectively, were received by the City, contri buting approximately 28.0% and 29.3% of total General Fund revenues in fiscal years 2018-19 and 2019-20, respectively. The City has budgeted for sales tax receipts of approximately $20.9 million to be received during fiscal year 2020-21. A sales tax is imposed on retail sales or consumption of personal property.

In fiscal year 2020-21, sales tax is budgeted to experience a significant decrease due to COVID-19.

Sales tax revenue projections have been reduced by 18% (approximately $4.7 million) from original forecasts due to COVID-19. Sales tax is assumed to return to 90% of historical averages across industry groups in fiscal year 2021-22. Sales tax is projected to grow by an average annual growth rate of 2.2% in the City’s five-year forecast, using conservative forecasts for business and industry, general consumer goods, restaurants and hotels and state and county pools. See the caption “—COVID-19 Pandemic Impact” herein.

The basic sales tax rate is established by the State Legislature, and local overrides may be approved by voters. The current total sales tax rate in the City is 9.00%. The following table shows the sales tax revenues received by the City for the five most recent fiscal years.

TABLE 7

CITY OF CUPERTINO

SALES TAX REVENUES
Fiscal Year
Total Sales Tax
Revenues
2015-16
$ 21,350,056
2016-17 26,932,012
2017-18 26,164,531
2018-19 24,901,779
2019-20 26,651,250

Source: City of Cupertino.

28 Table 8 below shows the taxable transactions by industry type as of June 30, 2019. The information in Table 8 has been obtained from HdL, Coren & Cone and is included for general information purposes only.

The City has not verified the information in Table 8 and does not guarantee the accuracy of such information.

TABLE 8

CITY OF CUPERTINO

TAXABLE TRANSACTIONS BY INDUSTRY

Industry
Percentage of All
Taxable
Transactions
Business-to-Business 67%
State and County Pools 17
Restaurants and Hotels 6
General Retail 4
Fuel and Service Stations 3
Other 3
Total 100%

Source: HdL, Coren & Cone.

Business-to-business revenue is the largest portion of the City’s sales tax base, and therefore the City’s sales tax revenue is sensitive to economic forces. In particular, the City’s two largest sales tax sources—both technology companies—account for a large portion of the City’s total sales tax base. Sales tax revenue is reported two quarters in arrears, providing th e City with approximately six months to react if sales tax revenue begins to decline.

Table 9 below provides the top twenty-five sales tax payers (in alphabetical order) within the City for fiscal year 2019-20.

TABLE 9

CITY OF CUPERTINO

TWENTY PRINCIPAL SALES TAX PAYERS
(in alphabetical order)

7 Eleven Chevron Seagate Technology
99 Ranch Market Haidilao Hot Pot Shane Company
Alexander’s Steak House Huawei Enterprise Target
Alliance Insight Direct TJ Maxx
Apple Insight Public Sector Ulta Beauty
Argonaut Window & Door Kura Revolving Sushi Bar Valero
Benihana Lazy Dog Café Whole Foods Market
BJ’s Restaurant & Brewhouse Rotten Robbie
California Dental Arts Safeway

Source: City of Cupertino.

29 Table 10 summarizes the annual volume of taxable tr ansactions within the City for the years 2015 through 2019.

TABLE 10

CITY OF CUPERTINO

TOTAL TAXABLE TRANSACTIONS
(Dollars in Thousands)
Year Taxable Transactions
2015 $2,350,141
2016 2,397,871
2017 2,780,112
2018 2,695,658
2019 2,730,768

Source: Taxable Sales in California, California Department of Tax and Fee Administration for 2015-2019.

Transient Occupancy Tax
A transient occupancy tax is levied on hotels and short-term rentals in the City at the rate of 12% of room revenues. In fiscal years 2018-19 and 2019-20, transient occupancy tax re ceipts were approximately $8.9 million and $7.3 million, respectively, providing approximately 10.0% and 8.0% of total General Fund revenues in fiscal years 2018-19 and 2019-20, respectively.

Transient occupancy tax receipts in fiscal year 2019-20 were approximately $1.6 million, or 18.2%, less than the originally budgeted amounts largely due to the shelter-in-place order the Santa Clara County Public Health Department put into effect in March 2020 to control the COVID-19 Pandemic. In the adopted budget for fiscal year 2020-21, the City projects transient occupancy receipts to decrease approximately 21.9% from the fiscal year 2019-20 budgeted amounts. The City has budgeted for transient occupancy tax revenues of approximately $7.5 million to be received during fiscal year 2020-21. See the caption “—COVID-19 Pandemic Impact.”
Utility User Tax
The City collects a utility user tax, approved by the City’s voters in 1990, on gas, electricity and telecommunication services provided within the City’s jurisdiction at a rate of 2.4% of billed charges. In March 2002, the City’s voters approved extending the utility user tax’s sunset date from 2015 to 2030. In 2009, the City’s voters approved a measure to update the utility user tax ordinance to account for changing technology in the telecommunications services industry.

In fiscal years 2018-19 and 2019-2 0, utility user tax receipts were approximately $3.0 million and $3.2 million, respectively, providing approximately 3.4% and 3.5% of total General Fund revenues in fiscal years 2018-19 and 2019-20, respectively. The City has budgeted for utility user tax revenues of approximately $3.2 million to be received during fiscal year 2020-21.

Franchise Fees
The City receives franchise fees from cable, solid wa ste, water, gas and electricity franchisees that operate in the City. The fees range from 1% to 12% of the franchisee’s gross revenues depending on each particular agreement. Generally, these revenues are relatively steady and not sensitive to economic fluctuations.

30 In fiscal years 2018-19 an d 2019-20, the City received franchise fees of approximately $3.4 million and $3.4 million, respectively, providing approximately 3.8% and 3.7% of total General Fund revenues in fiscal years 2018-19 and 2019-20, respectively. The City has budgeted for franchise fees of approximately $3.3 million to be received during fiscal year 2020-21.

Charges for Services
In fiscal years 2018-19 and 2019-20, charges of approximately $10.9 million (approximately 12.3% of total General Fund revenues) and $12.0 million (approximately 13.1% of total General Fund Revenues), respectively, were collected for services. Charges for services includes the City’s attempts to recover the costs of services provided by the City, including planning, zoning and engineering permit processing for new property development, as well as some recreation-related fees. Charges for services also includes an overhead services fee provided to certain enterprise funds, internal service funds and special funds.

Fiscal year 2019-20 revenues from charges for services were lower than budgeted amounts due to the impact of the COVID-19 Pandemic causing the City’s recreation facilities to shut down by way of the shelter- in-place orders of the Santa Clara County Public Health Department. In fiscal year 2020-21, the City has budgeted revenues from charges for services of approximately $11.1 million, which includes an approximately $900,000 increase due to increases to City fees which will become effective October 1, 2020 and an expected $2.1 million decrease due to facility closures. See the caption “—COVID-19 Pandemic Impact.” Licenses and Permits
Licenses and permits include fees for reviewing building plans, building inspections, construction, tenant improvements and commercial/residential installations for compliance with state and municipal building codes. In fiscal years 2018-19 and 2019-20, the City collected approximately $4.1 million and $4.7 million, respectively, providing approximately 4.6% and 5.1% of total General Fund revenues in fiscal years 2018-19 and 2019-20, respectively. License and permit fees of approximately $3.1 million are budgeted to be received during fiscal year 2020-21.

Use of Money and Property
The use of money and property category is comprise d of General Fund interest earnings as well as facility and concession rental income of City-owned property. The City’s portfolio is approximately $154.9 million. Fluctuations in the use of money and property is generally the result of investment earnings, as rental income is generally steady year-to-year. Financial markets have recently experienced a high degree of volatility due to the uncertainty about the impact of the COVID-19 pandemic. See the caption “—COVID-19 Pandemic Impact.”
In fiscal years 2018-19 and 2019-20, the City received $2.6 million and $2.9 million, respectively, in use of money and property revenues, providing approximately 2.9% and 2.8% of General Fund revenues in fiscal years 2018-19 and 2019-20, respectively. Us e of money and property revenues of approximately $1.2 million are budgeted to be received during fiscal year 2020-21.

Other Revenues
Other Tax Revenues. Other taxes received by the City include business license taxes, construction taxes, and property transfer taxes.

Miscellaneous Revenues. Other miscellaneous revenues received by the City include fines and forfeitures generated from vehicle, parking and miscellaneous code violations, intergovernmental revenues from federal, state and regional grants and other miscellaneous revenues.

31 Indebtedness
Long-Term Debt. The City’s long-term obligations payable from the General Fund currently consist solely of the 2012 Certificates. The 2012 Certificat es are expected to be prepaid from a portion of the proceeds of the Certificates. See the “PREPAYMENT PLAN” herein.

Short-Term Debt. The City currently has no short-term debt outstanding.

Retirement System
This caption contains certain information relating to the California Public Employees Retirement System (“CalPERS”). The information is primarily derived from info rmation produced by CalPERS, its independent accountants and actuaries. The City has not independently verified the information provided by CalPERS and makes no representations nor expresses any opinion as to the accuracy of the information provided by CalPERS.

The comprehensive annual financial reports of CalPERS are available on its Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference herein. The City cannot guarantee the accuracy of such information. Actuarial assessments are “forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future.

Actuarial assessments will change with the future experience of the pension plans.

Plan Description and Summary of Balances . The City contributes to CalPERS, an agent multiple- employer public employee defined benefit pension plan. CalPERS provides retirement, disability and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State, including the City. CalPERS plan benefit provisions and all other requirements are established by State statute and the City Council.

Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statut orily reduced benefits. All members are eligible for non- duty disability benefits after 10 years of service. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law (“PERL”). The Pension Reform Act of 2013 (“PEPRA”), Assembly Bill 340, is applicable to employees new to CalPERS and hired after December 31, 2012. The Plans’ provisions and benefits in effect at June 30, 2019, are summarized as follows:

Hire date

Prior to
January 1, 2013
On or after
January 1, 2013
Benefit formula 2.7% @ 55 2.0% @ 62
Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life
Minimum retirement age 50 52
Monthly benefits, as a % of eligible compensation 2% to 2.7% 1% to 2% Required employee contribution rates 8.00% 6.25%
Required employer contribution rates 23.54% 25.653%

32 Employees Covered. As of the June 30, 2017 actuarial valuation date (most current), the following employees were covered by the benefit terms of the Plan:

Inactive employees or beneficiaries currently receiving benefits 213 Inactive employees entitled to but not yet receiving benefits 138 Active employees 188
Total 539

Contributions. Section 20814(c) of PERL requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute th e difference between the actuarially determined rate and the contribution rate of employees.

For the year ended June 30, 2019, the City’s required contributions for the Miscellaneous Plan were $4,447,555. For the year ended June 30, 2020, the City’s required contributions for the Miscellaneous Plan were $5,089,159. Such amounts were paid by the City and represented approximately 7.1% and 5.3% of General Fund expenditures in fiscal years 2018-19 and 2019-20, respectively.

Beginning with fiscal year 2017-18 CalPERS began collecting employer contributions toward the plan’s unfunded liability as dollar amounts unfunded liability as dollar amounts instead of the prior method of a contribution rate. According to CalPERS, this change was to address potential funding issues that could arise from a declining payroll or reduction in the number of active members in the plan. Funding the unfunded liability as a percentage of payroll could lead to the underfunding of the plans. Due to stakeholder feedback regarding internal needs for total contributions expressed as an estimated percentage of payroll, the CalPERS reports include such results in the contribution projection set forth in the tables below. These results are provided for information purposes only. Contributions toward the unfunded liability will continue to be collected as set dollar amounts.

The table below is derived from the Miscellaneous Plan of the City of Cupertino Annual Valuation Report as of June 30, 2018 and delivered in July 2019 (the “2019 Report”) and shows the required and projected employer contributions (before cost sharing) for the next six fiscal years. Projected results reflect the adopted changes to the discount rate described in the 2019 Report. Such projections also assume that all actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the projection period. The pr ojected normal cost percentages in the projections below does not reflect that the normal cost will decline over the time as new employees are hired into PEPRA or other lower cost benefit tiers.

Required
Contribution
Projected Future Employer Contributions
(Assumes 7.00% Return for Fiscal Year 2018-19)

Fiscal Year 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26

Miscellaneous Plan
Normal Cost % 11.306% 11.3% 11.3% 11.3% 11.3% 11.3%%
UAL Payment $3,607,122 $4,056,000 $4, 448,000 $4,724,000 $5,001,000 $4,775,000 Total as a % of Payroll* 29.8% 31.6% 32.9% 33.6% 34.3% 32.7% Projected Payroll $19,490,834 $20,026,831 $20,577,569 $21,143,452 $21,724,897 $22,322,332

* Illustrative only and based on the projected payroll shown.

Source: CalPERS’ 2019 Report.

33 No assurance can be provided that the City’s CalPERS plan expenses will not increase significantly in the future.

Net Pension Liability . The City’s net pension liability for the Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. Th e net pension liability of the Plan is measured as of June 30, 2018, using an annual actuarial valuation as of June 30, 2017 rolled forward to June 30, 2018 using standard update procedures. For a summary of principal assumptions and methods used to determine the net pension liability, see Note 10 to the City’s audited financ ial statements for fiscal year 2018-19 attached hereto as Appendix B.

Changes in Net Pension Liability . The changes in the Net Pension Liability for the City’s Miscellaneous Plan are as follows:

Increase (Decrease)

Total Pension
Liability
Plan Fiduciary
Net Position
Net Pension
Liability
Balance at June 30, 2017 $ 127,947,594 $ 86,803,192 $ 41,144,402 Changes in the year:

Service cost 3,058,629 - 3,058,629
Interest on the total pensi on liability 9,065,322 - 9,065,322 Change of Assumptions (847,606) - (847,606)
Differences between actual and expe cted experience 1,184,340 - 1,184,340 Contribution – employer - 4,263,020 (4,263,020)
Contribution – employee - 1,506,888 (1,506,888)
Net investment income - 7,347,936 (7,347,936)
Administrative expenses - (392,346) 392,346
Benefit payments, including refunds of employee contributions (6,051,845) (6,051,845) - Net changes 6,408,840 6,673,653 (264,813)
Balance at June 30, 2018 $ 134,356,434 $ 93,476,845 $ 40,879,589

On June 25, 2012, the Governmental Accounting Standards Board approved GASB Statement No. 68 (“GASB 68”) with respect to pension accounting and financial reporting standards for state and local governments and pension plans. GASB 68 states that, for pensions within the scope of the statement, a cost- sharing employer that does not have a special funding situation is required to recognize a net pension liability, deferred outflows of resources, deferred inflows of res ources related to pensions, and pension expense based on its proportionate share of the net pension liability for benefits provided through the pension plan. While the new accounting standards change financial statement reporting requirements, they do not impact funding policies of the pension systems. The audited financial statements of the City for fiscal year 2018-19 reflect the application of the GASB 68. GASB 68 is a change in accounting reporting standards but it does not change the City’s CalPERS plan funding obligations.

For additional information with respect to the discount rate, deferred outflows/(inflows) of resources, and recognition of gains and losses, see Note 10 to the City’s audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.

34 Funded Status. The tables below are derived from the 2019 Report and show the funded status of the Safety Plan and Miscellaneous Plan as of the valuation dates shown.

Miscellaneous Plan
Valuation
Date
Accrued
Liability
Market Value of
Assets
Unfunded
Liability Funded Ratio
Annual
Covered
Payroll
06/30/2014 $104,798,405 $76,439,737 $28,358,668 72.9% $13,111,617 06/30/2015 111,188,031 77,897,977 33,290,054 70.1 13,919,387 06/30/2016 118,489,119 77,919,876 40,569,243 65.8 15,140,909 06/30/2017 127,138,300 86,617,172 40,521,128 68.1 16,359,464 06/30/2018 141,033,621 93,550,299 47,483,322 66.3 17,967,387

Source: CalPERS’ 2019 Report.

AB 340, Public Employee Pension Reform Act of 2013 (PEPRA) . On September 12, 2012, the California Governor signed Assembly Bill 340 (“AB 340”), which implements pension reform in California.

Effective January 1, 2013, AB 340: (i) requires public retirement systems and their participating employers to share equally with employees the normal cost rate for such retirement systems; (ii) prohibits employers from paying employer-paid member contributions to such retirement systems for employees hired after January 1, 2013; (iii) establishes a compulsory maximum non-safety benefit formula of 2.5% at age 67; (iv) defines final compensation as the highest average annual pensionable compensation earned during a 36-month period; and (v) caps pensionable income at $110,100 ($132,120 for employees not enrolled in Social Security) subject to Consumer Price Index increases. Other provisions reduce the risk of the City incurring additional unfunded liabilities, including prohibiting retroactive benefits increases, generally prohibiting contribution holidays, and prohibiting purchases of additional non-qualified service credit.

CalPERS Plan Actuarial Methods . The staff actuaries at CalPERS prepare annually an actuarial valuation which is typically delivered in the time period from July through October of each year (thus, the actuarial valuation dated July 2019 covered CalPERS’ fiscal year ended June 30, 2018). The actuarial valuations express the City’s required contribution which the City must contribute in the fiscal year immediately following the fiscal year in which the actuari al valuation is prepared (thus, the City’s contribution requirement derived from the actuarial valuation as of June 30, 2018 and shown in the report delivered in July 2019 affects the City’s fiscal year 2020-21 required contribution). CalPERS rules require the City to implement the actuary’s recommended rates.

The CalPERS Chief Actuary considers various factors in determining the assumptions to be used in preparing the actuarial report. Demographic assumptions are based on a study of the actual history of retirement, rates of termination/separation of employment, years of life expectancy after retirement, disability, and other factors. This experience study is generally d one once every four years. The most recent experience study was completed in 2017 in connection with the preparation of actuarial recommendations by the CalPERS Chief Actuary as described below.

In December 2016, the CalPERS Board approved lowering the funding discount rate to be phased in over three years: for fiscal year 2018-19 to a rate of 7.375 percent; for fiscal year 2019-20 to a rate of

7.25 percent; and for fiscal year 2020-21 to a rate of 7.0 percent. The funding discount rate includes a 15 basis-point reduction for administrative expenses, and the remaining decrease is consistent with the change in the financial reporting discount rate. As noted above, there is an approximately fifteen month lag between the time that CalPERS provides its annual actuarial valuation and the fiscal year in which the required contribution therein impacts the City.

35 On November 18, 2015, the CalPERS Board adopted a Funding Risk Mitigation Policy that seeks to reduce funding risk over time. It establishes a m echanism whereby CalPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return, and strategic asset allocation targets. Reducing the volatility of investment returns is expected to increase the long-term sustainability of CalPERS pe nsion benefits for members. In February 2017, the CalPERS Board revised the Funding Risk Mitigation Policy. The revisions include suspension of the policy until fiscal year 2020-21, and a decrease of the requir ed first excess investment re turn threshold from 4% to 2%.

On February 14, 2018, the CalPERS Board of Administration adopted revisions to its actuarial amortization policy. Major revisions that affect state plans were made to the amortization of investment gains and losses, as well as to actuarial surplus. For the amortization of investment gains and losses, the amortization period was reduced from 30 years to 20 years, and the 5-year direct smoothing process was removed from the end of the amortization period. Amortization of actuarial surplus was eliminated. These policy revisions will be applied to the amortization of investment gains and losses, and actuarial surplus, experienced on or after June 30, 2019. These revisions will affect contributions starting in fiscal year 2020-21.

Other Post-Employment Benefits
The Retiree Health Plan . For employees hired prior to April 25, 2010, the City provides certain healthcare benefits for employees who retire after attaining age 50 with at least five years of service or disability at any age. For employees hired after April 25, 2010, the City offers a defined contribution post- retirement healthcare plan and contributes 1.5% of salary to such plan. For additional information with respect to the benefits offered under the City’s other post-employment benefit plan (“OPEB”), see Note 9 to the audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.

At June 30, 2018, membership consisted of the following:

Active Plan Members 388
Inactive Employees or Beneficiaries Currently Receiving Benefit Payments 231 Total 619

Source: City Comprehensive Audited Financial Report for fiscal year 2018-19.

Total OPEB Liability . In June 2015, GASB issued Statement No. 75, which became effective for fiscal years beginning after June 15, 2017. The pr imary objective of Statement No. 75 is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (i.e. OPEB). GASB 75 is also intended to improve information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. Statement No. 75 results from a comprehensive review of the effectiven ess of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency.

More specifically, GASB 75 requires the liability of employers to be measured as the portion of the present value of projected benefit payments to be prov ided to current active and inactive employees that is attributed to those employees’ past periods of service (total OPEB liability), less the amount of the OPEB plan’s fiduciary net position. GASB 75 requires the recognition of the total OPEB liability in the Statement of Net Position. As a result of the implementation of GASB 75, in the City’s audited financial statements for fiscal year 2017-18, a reconciliation for net position (reductions) was made to the City’s beginning net position for governmental activities in the amount of $11,525,596 and for business-type activities in the amount of $80,283.

36 Plan Description. Permanent employees who retire under the City’s CalPERS retirement plan are, pursuant to their respective collective bargaining ag reements, eligible to have their medical insurance premiums paid by the City. Retir ees receive the amount necessary to pay the cost of his/her enrollment, including the enrollment of his/her family members, in a health benefit plan provided by CalPERS up to the maximum received by active employees in their respective bargaining unit.

The City contracts with CalPERS for this insured-benefit plan established under the state Public Employees’ Medical and Hospital Care Act (“PEMHCA”) . The plan offers employees and retirees three CalPERS’ self-funded options, setup as insurance risk pools, or offers various third-party insured health plans.

The plan’s medical benefits and premium rates are established by CalPERS and the insurance providers. The City contribution is established by City resolution. Retirees and active employees pay the difference between the premium rate and the City’s contribution. Premiu ms and City contributions are based on the plan and coverage selected by actives and retirees, with the City’s potential contribution ranging from zero to $1,605 per month per employee or retiree. The responsibility for benefit payments has transferred to the insurers and the City does not guarantee the benefits in the event of default by the insurers. A comprehensive annual financial report of CalPERS, inclusive of their benefit plans, is available at www.calpers.ca.gov.

The City participates in the Public Agency Re tirement System (“PARS”) Public Agencies Post Retirement Health Care Plan Trust Program (“PARS Tr ust”), an agent-multiple employer irrevocable trust established to fund other postemployment benefits. The City Council adopted the PARS Public Agencies Post-Retirement Health Care Plan Trust, including th e PARS Public Agencies Post-Retirement Health Care Plan, to fund medical insurance costs for its retired empl oyees, effective February 17, 2010. The City Council appointed the City Treasurer as the City’s plan administrator. The plan administrator is authorized to execute the PARS legal documents on behalf of the City and to take whatever additional actions necessary to maintain the City’s participation in the Program and to maintain compliance of any relevant regulation issued or as may be issued; therefore, authorizing him/her to take what ever additional actions are required to administer the City’s PARS Plan. The PARS Trust is approved by the Internal Revenue Code Section 115 and invests funds in equity, bond, and money market mutual funds. Copies of the PARS Trust’s annual financial report are available at the City’s Finance Department. However, as the City is the plan administrator and has ultimate responsibility for the plan, the City considered the plan to be a single employer plan with PARS as the trust administrator only (with no special funding situation or nonemployer contributing entity). As such, in accordance with the requirements of GASB Statement No. 74, Financial Reporting for Post Employment Benefit Plans Other Than Pension Plans , the City has elected to present th e PARS Trust as a fiduciary fund and include the required disclosures and required supplementary information in its annual financial statements.

An employee is eligible for lifetime medical benefits under the OPEB Plan, along with his/her spouse or declared domestic partner at the time of retirement, if all criteria listed below are met:
 The employee was hired or the City Council member was elected prior to August 1, 2004, and the employee has five or more full-time years of service and the City Council member has five or more years of elected service with the City; or
 The employee was hired or the City Council member was elected on or after August 1, 2004, and the employee has ten or more full-time and/or el ected years of CalPERS se rvice, five years of which must be from the City; and
 The employee is eligible for retirement as defined under the CalPERS retirement system; and the employee retires from the City.

In addition, the eligible employee’s dependent children at the time of retirement who are under 23 years old are eligible for medical benefits. In addition to extending the eligibility of dependents from age 23 to age 26 in accordance with the recent healthcare refo rm act, effective July 1, 2010, employees that retire

37 or resign from service with the City of Cupertino and who are not eligible for retiree medical benefits can continue on the City’s medical and dental plans provided that they pay the premiums in full.

Plan membership. At January 1, 2019 (the latest information available), Plan membership consisted of the following:

Inactive plan members or beneficiaries currently receiving benefit payments 138 Inactive plan members entitled to but not yet receiving benefit payments - Active plan members 176
314

Contributions. OPEB Plan contributions are set by the adopted budget. The cost of the benefits provided by the OPEB Plan is currently being paid by the City on a fully pre-funded basis. Based on the actuarial valuation date of January 1, 2019, the annual required contribution rate is 7.41 percent of annual covered payroll. For the year ended June 30, 2019, the City paid $1,075,908 in healthcare premium payments.

Plan members are not required to contribute to the plan.

Net OPEB Liability of the City . The components of the net OPEB liability (asset) of the City at June 30, 2019 (expressed in thousands) were as follows:

Total OPEB liability $ 28,073
Plan fiduciary net position 29,218
City’s net OPEB asset $ (1,145)

Plan fiduciary net position as a percentage of the total OPEB liability 104.08%

Actuarial assumptions . The total OPEB liability was determined by an actuarial valuation as of January 1, 2019, using the previously listed actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified. Mortality rates were based on the CalPERS mortality assumptions.

For more information regarding the actuarial assumptions with respect to the City’s OPEB liability, see Note 11 to the audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.

Changes in the Net OPEB Liability. The changes in the City’s net OPEB liability (asset) are:

Net Increase (Decrease)
Total OPEB Liability
Plan Fiduciary
Net Position
Net OPEB
Liability (Asset)
Balance at July 1, 2018 $ 28,471,000 $ 28,056,000 $ 415,000 Changes in the year
Service cost 865,000 - 865,000
Interest on the total OPEB liability 2,005,000 - 2,005,000 Change of assumptions (37,000) - (37,000)
Differences between actual and expect ed experience (1,808,000) - (1,808,000) Contribution – employer - 1,423,000 (1,423,000)
Contribution – employee - - -
Net investment income - 1,259,000 (1,259,000)
Administrative expenses - (97,000) 97,000
Benefit payments, including refunds of -
Employee contributions (1,423,000) (1,423,000) -
Net changes (398,000) 1,162,000 (1,560,000)
Balance at June 30, 2019 $ 28,073,000 $ 29,218,000 $ (1,145,000)

For additional information with respect to the City’s OPEB plan, see Note 11 to the audited financial statements for fiscal year 2018-19 attached hereto as Appendix B.

38 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Principal of and interest with respect to the Cer tificates are payable from Lease Payments made from the City’s General Fund. See the capti on “SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES” herein. Articles XIIIA, XIIIB, XIIIC and XIIID of the State Consti tution, Propositions 62, 111, 218, 1A and 22, and certain other provisions of law discussed below are included in this Official Statement to describe the potential effect of these Co nstitutional and statutory measures on the ability of the City to levy taxes and spend tax proceeds for operating and other purposes.

Article XIIIA of the State Constitution
On June 6, 1978, State voters approved Proposition 13, which added Article XIIIA to the State Constitution. Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service: (i) on indebtedness approved by the voters prior to December 1, 1978; (ii) on bonded indebtedness approved by a two-thirds vote on or after December 1, 1978, for the acquisition or improvement of real property; or (iii) bonded indebtedness incurred by a school district, community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters voting on the proposition. Article XIIIA defines full cash value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter, the appraised value of real property when pu rchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” This full cash value may be increased at a rate not to exceed 2% per year to account for inflation.

Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, including a general economic downturn, to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster, and in other minor or technical ways.

Legislation Implementing Article XIIIA
Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA.

Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by counties and distributed according to a formula among taxing agencies.

Increases in assessed valuation re sulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.

All taxable property is shown at full cash value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxabl e property value included in this Official Statement is shown at 100 percent of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.

Split Roll Initiative
On May 29, 2020, a proposed voter initiated ballot initiative became eligible and subsequently qualified for the November 2020 Statewide ballot (the “Pr oposition 15”). If approved by a majority of voters casting a ballot at the November 2020 Statewide election, Proposition 15 would amend Article XIIIA such that the “full cash value” of commercial and industrial real property, for each lien date, would be equal to the fair

39 market value of that property. If approved, Propositi on 15 would not affect the “full cash value” of residential property, real property used for commercial agricultural production, or commercial and industrial real property with combined value of $3 million or less, which would continue to be subject to annual increases not to exceed 2%. In addition, Proposition 15 would eliminate the business tangible personal property tax on equipment and fixtures for small businesses and provide a $500,000 per year exemption for all other businesses. After compensating the State General Fund for resulting reductions in State personal income tax and corporate tax revenues, and compensating cities, counties and special districts for the cost of implementing Proposition 15, approximately 40% of the remaining additional tax revenues generated as a result of Proposition 15 would be deposited into a fund created pu rsuant to Proposition 15 called the Local School and Community College Property Tax Fund, with such funds being used to supplement, and not replace, existing funding school districts and community college districts receive under the State’s constitutional minimum funding requirement. With respect to the tax revenues deposited into the Local School and Community College Property Tax Fund, 11% would be allocated by the Board of Governors of the California Community Colleges to community college districts and 89% of such tax revenues would be allocated by the Superintendent of Public Instruction to school districts, charter schools and county offices of education.

On July 1, 2020, a legislatively referred constitutional amendment was filed with the Secretary of State and subsequently qualified for the November 2020 Statewide ballot (“Proposition 19”). If approved by a majority of voters casting a ballot at the November 2020 Statewide election, Proposition 19 would amend Article XIIIA to: (i) expand special rules that give property tax savings to homeowners that are over the age of 55, severely disabled, or whose property has been impacted by wildfire or natural disaster, when they buy a different home; (ii) narrow existing special rules for inherited properties; and (iii) dedicate most of the potential new State revenue generated from Proposition 19 toward fire protection.

The City cannot predict whether either Proposi tion 15 or Proposition 19 will be approved by a majority of voters casting a ballot. If approved, the C ity cannot make any assurance as to what effect the implementation of either Proposition 15 or Proposition 19 will have on Pledged Tax Revenues or the assessed valuation of real property in the Project Areas.

Article XIIIB of the State Constitution
In addition to the limits that Ar ticle XIIIA imposes on property taxe s that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual “appropriations limit” imposed by Article XIIIB which effectively limits the amount of such revenues that such entities are permitted to spen d. Article XIIIB, approved by the voters in June 1979, was modified substantially by Proposition 111 in 1990. The appropr iations limit of each government entity applies to “proceeds of taxes,” which consist of tax revenues and the investment proceeds thereof, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed “the cost reasonably borne by such entity in providing the regulation, product or service.” “Proceeds of taxes” excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not “proceeds of taxes,” such as reasonable user charges or fees, and certain other non-tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on bo nds existing or authorized as of October 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropri ation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbanc e or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government.

The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to

40 or from another government entity of financial responsib ility for providing services. Proposition 111 requires that each local government’s actual appropriations be tested against its limit every two years.

If the aggregate “proceeds of taxes” for the preceding two-year period exceeds the aggregate limit, the excess must be returned to the agency’s taxpayers thro ugh tax rate or fee reductions over the following two years.

The City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB.

Articles XIIIC and XIIID of the State Constitution
On November 5, 1996, State voters approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the State Constitution a nd contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments and property-related fees and charges. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination.

Article XIIIC requires that all ne w local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City (such as Measure W) require a majority vote, and taxes for specific purposes, even if deposited in the City’s General Fund, require a two-thirds vote. The voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs.

Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property-related fees, charges, and assessm ents for municipal services and programs, such as hearings and stricter and more individualized benefit requirements and findings. These provisions include, among other things: (i) a prohibition against assessments wh ich exceed the reasonable cost of the proportional special benefit conferred on a parcel; (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIIID, over and above any general benefits conferred; ( iii) a majority protest procedure for assessments which involves the mailing of notice and a ba llot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party; and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, wher e the service is available to the public at large in substantially the same manner as it is to property owners. If the City is unable to continue to collect revenues of this nature, the services and programs funded with these revenues would have to be curtailed and/or the City’s General Fund might have to be used to support them. The City is unable to predict whether or not in the future it will be able to continue all existing services and programs funded by fees, charges and assessments in light of Proposition 218 or, if these services and programs are continued, which amounts (if any) would be used from the City’s General Fund to continue to support such activities.

Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposit ion 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by in itiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund.

41 Although a portion of the City’s General Fund revenues are derived from taxes purported to be governed by Proposition 218, all of such taxes were imposed in accordance with the requirements of Proposition 218. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges which support the City’s General Fund.

Proposition 62
Proposition 62 was adopted by the voters at the November 4, 1986, general election and: (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two-thirds vote of the governmental entity’s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax; (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax; (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed; (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Arti cle XIIIA; (e) prohibits the imposition of transaction ta xes and sales taxes on the sale of real property by local governmental entitie s; and (f) requires that an y tax imposed by a local governmental entity on or after July 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988.

On September 28, 1995, the California Supreme Cour t, in the case of Santa Clara County Local Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court held that a countywide sales tax of one-half of one percent was a special tax that, under Section 53722 of the Government Code, required a two-thirds voter approval. Because the tax received an affirmative vote of only

54.1%, this special tax was found to be invalid. The decision did not address the question of whether or not it should be applied retroactively.

Following the California Supreme Court’s decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62, which was passed in November 1986. On June 4, 2001, the California Suprem e Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. In this case, the court held that a public agency’s continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought.

The City has not experienced any substantive adverse financial impact as a result of the passage of Proposition 62.

Proposition 1A
Proposition 1A was approved by the voters at th e November 2, 2004 election. Proposition 1A amended the State Constitution to, among other things, reduce the Legislature’s authority over local government revenue sources by placing restrictions on the State’s access to local governments’ property, sales, and vehicle license fee revenues as of November 3, 2004. Beginning with fiscal year 2008-09, the State may borrow up to eight percent of local property tax revenues, but only if the Governor proclaims such action is necessary due to a severe State fiscal hardship, and two–thirds of both houses of the Legislature approves the borrowing. The amount borrowed is required to be paid back within three years. The State also will not be able to borrow from local property tax revenues for more than two fiscal years within a period of 10 fiscal years. In addition, the State cannot reduce the local sales tax rate or restrict the authority of local governments to impose or change the distribution of the statewide local sales tax.

42 Many of the provisions of Proposition 1A have been superseded by Proposition 22 enacted in November 2010 and described below.

Proposition 22
On November 2, 2010, the voters of the Stat e approved Proposition 22, known as “The Local Taxpayer, Public Safety, and Transportation Protection Act” (“Proposition 22”). Proposition 22, among other things, broadens the restrictions established by Proposition 1A. While Proposition 1A permits the State to appropriate or borrow local property tax revenues on a temporary basis during times of severe financial hardship, Proposition 22 amends Article XIII of the State Constitution to prohibit the State from appropriating or borrowing local property tax revenues under any circumstances. The State can no longer borrow local property tax revenues on a temporary basis even during times of severe financial hardship. Proposition 22 also prohibits the State from appropriating or borrowing proceeds derived from any tax levied by a local government solely for the local government’s purposes. Furthermore, Proposition 22 restricts the State’s ability to redirect redevelopment agency property tax revenues to school districts and other local governments and limits uses of certain other funds although this pr ovision no longer has any meaningful impact given the statewide dissolution of redevelopment agencies. Proposition 22 is intended to stabilize local government revenue sources by restricting the State government’s control over local revenues. The City cannot predict whether Proposition 22 will have a beneficial effect on the City’s financial condition.

Proposition 26
On November 2, 2010, State voters also approved Proposition 26. Proposition 26 amends Article XIIIC of the State C onstitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government pr operty, or the purchase, rental or lease of local government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of government or a local government as a result of a viol ation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonabl e relationship to the payor’s burdens on, or benefits received from, the governmental activity . The City does not believe that Proposition 26 will adversely affect its General Fund revenues.

Possible Future Initiatives
Articles XIIIA, XIIIB, XIIIC and X IIID and Propositions 218, 1 11, 62, 1A, 22 and 26 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting revenues of the City or the City’s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the City.

43 RISK FACTORS
The following information, in addition to the other matters that are described in this Official Statement, should be considered by prospective inve stors in evaluating the Certificates. However, the following does not purport to be comprehensive, definitive or an exhaustive listing of risks and other considerations that may be relevant to making an investment decision with respect to the Certificates. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. If any risk factor materializes to a sufficient degree, it alone could delay or preclude payment of principal of or interest with respect to the Certificates.

No Pledge of Taxes or Revenues
The Certificates do not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to make Lease Payments under the Lease does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness of the City, the State of California or any of political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction.

Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay Lease Payments and Additional Payments from any source of legally available funds (subject to certain exceptions) and the City has covenanted in the Lease that, for as long as the Leased Premises are available for its use and possession, it will make the necessary annual appropriations within its budget for all Lease Payments and Additional Payments. The City is currently liable on other obligations payable from general revenues. In the event of a shortfall in revenues, a court might require that the City first set aside revenues to pay the other obligations of the City or to make expenditures necessary to preserve the health and welf are of City residents. See “CITY FINANCIAL INFORMATION Indebtedness” herein.

Certain taxes, assessments, fees and charges presently imposed by the City, such as the City utility tax and the transient occupancy ta x, could be reduced or elim inated by initiative pursua nt to Article XIIIC of the State Constitution, and new taxes, asse ssments fees and charges subject to the voter approval requirements of Article XIIID of the State Constitution may not be appr oved by voters. The City does not believe that Article XIIIC grants to the voters the power to reduce or repeal local taxes, asse ssments, fees and charges received by the City to an extent that would prevent the City from performing its existing contractual obligations. However, it is possible that the initiative power could be exercised in a manner that would have a material adverse effect on the financial condition of the City, including its General Fund. Although the City does not currently anticipate that the provisions of Article X IIIC and Article XIIID of the State Constitution would adversely affect its ability to pay the principal of and interest with respect to the Certificates, as and when due, and its other obligations payable from the General Fund, no assurance can be given regarding the ultimate interpretation or effect of Article XIIIC and Article XIIID of the State Constitut ion on the City’s finances. See “CITY FINANCIAL INFORMATION—Major Revenues” and “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS” herein.” Additional Obligations of the City
The City is permitted to enter into other obligations which constitute additional charges against its revenues without the consent of Owners of the Certificat es. To the extent that additional obligations are incurred by the City, the funds available to pay Lease Payments may be decreased.

The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Premises, taxes and ot her governmental charges levied against the Leased

44 Premises) are payable from funds lawfully available to the City. In the event that the amounts which the City is obligated to pay in a fiscal year exceed the City’s revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments and Additional Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare.

Default
Whenever any event of default referred to in the Lease happens and continues, the Trustee, as the assignee of the Corporation, is authorized under the terms of the Lease to exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything therein or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY

CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN DUE OR PAST DU E TO BE IMMEDIATELY DUE AND PAYABLE.

NEITHER THE CORPORATION NOR ITS ASSIGNEE SHALL HAVE ANY RIGHT TO REENTER OR RELET THE LEASED PREMISES EXCEPT FOLLOWING A DEFAULT UNDER THE LEASE. Following an event of default, the Trustee, as the assignee of the Corporation, may elect either to terminate the Lease and seek to collect damages from the City or to maintain the Lease in effect and seek to collect the Lease Payments as they become due. The Lease further provides that so long as an event of default exists under the Lease, the Corporation, or its assignee, may re-enter the Leased Premises for the purpose of taking possession of any portion of the Leased Premises and to re-let the Leased Premises and, in addition, at its option, with or without such entry to terminate the Lease as described th erein. See Appendix C— “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT—EVENTS OF DEFAULT AND REMEDIES—Remedies On Default.” No assurance can be given that the Trustee will be ab le to re-let the Leased Premises so as to provide rental income sufficient to pay principal and interest ev idenced by the Certificates in a timely manner or that such re-letting will not adversely affect the exclusion of interest due with respect to the Certificates from gross income for federal or State income ta x purposes. Furthermore, due to the fact that the Leased Premises are needed to provide essential public services to residents of the City, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect to the Leased Premises.

In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease and the Trustee is not empowered to sell the Leased Premises an d use the proceeds of such sale to prepay the Certificates or pay debt service with respect thereto. The City will be liable only for Lease Payments on an annual basis and, in the event of a defa ult, the Trustee would be required to seek a separate judgment each year for that year’s defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in California, including a limitation on enforcement of judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments were due and against funds needed to serve the public welfare and interest.

Release or Substitution of Property
Under the terms of the Lease, the City has the right from time to time to add other real property and improvements (subject only to Permitted Encumbrances) or to substitute other real property or improvements (subject only to Permitted Encumbrances) for all or a portion of the Leased Premises or to release a portion of the real property or improvements constituting the Leased Premises, subject to the conditions precedent to such addition, substitution or release as set forth in the Lease. No addition, substitution or release under the Lease will be, by itself, the basis for any reduction in or abatement of the Lease Payments due from the City thereunder. A release could, however, result in a reduct ion in the fair rental value of the Leased Premises which would result in less security for the Owners should it be necessary to relet the Leased Premises to cure a default in Lease Payments. See Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—

45 DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—COVENANTS WITH RESPECT TO THE LEASED PREMISES—Substitution or Release of th e Leased Premises” herein.

In connection with a substitution or release, all interests of the Corporation, and its assignee, in the portion of the Leased Premises released shall terminat e and the Corporation and its assignee shall execute and record with the County Recorder of the County all doc uments deemed necessary by the City to evidence such termination of interest. Upon satisfaction by the City of the conditions set forth in the Lease, the Trustee also will execute a Lease Supplement and will not impose on th e City any further conditions or prerequisites to the requested addition, substitution or release. The City will cause the Lease Supplement, or another document substantially in the form of the Lease Supplement, to be recorded in the real property records of the County.

All costs and expenses incurred in connection with such addition, substitution or release will be borne by the City.

Abatement
The City’s obligation to make Lease Payments will be subject to full or partial abatement and could result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates under certain circumstances related to material damage, destruction, title defect or taking by eminent domain or condemnation of the Leased Premises which cause a substantial interference with the use and possession of the Leased Premises. In addition, if Additional Certific ates are sold to finance additional improvements to the Leased Premises, failure to complete the improvements on or before the date to which capitalized interest is funded on the Additional Certificates could incur an abatement and result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates and Additional Certificates when due.

The Lease obligates the City to ob tain and keep in force various forms of insurance for the Leased Premises in the event of damage or destruction to the Leased Premises (s ee Appendix C—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—INSURANCE” herein). Howe ver, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers, and the City makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy provided for in the Lease. In additi on, the City is not required under the Lease Agreement to obtain earthquake and flood insurance.

In the event the Leased Premises are partially or completely damaged or destroyed due to any uninsured or underinsured event, it is likely that Lease Payments will be partially or completely abated. Apart from the proceeds of insurance, the City and the Corpor ation will have no obligation to expend any funds to repair or replace such damaged or destroyed property. If the Leased Premises so damaged or destroyed are not repaired or replaced within the period during which the proceeds of rental interruption insurance are available, any such abatement could result in the Trustee having insufficient funds to pay the principal of and interest with respect to the Certificates as scheduled.

See Appendix C—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE—AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS—Abatement of Lease Paym ents in the Event of Loss of Use” herein.

No Reserve Fund
The City has not established a reserve fund in co nnection with the execution and delivery of the Certificates. In the event of abatement of Lease Payments, funds available to pay debt service on the Certificates will be limited to proceeds of insurance (including rental interruption insurance). In addition, if annual appropriations to pay Lease Payments are not made (for example, due to delay in adoption of an annual

46 budget), no funds would be available to pay debt service on the Certificates until such appropriations were available.

Natural Disasters
The occurrence of any natural disaster in the City, including, without limitation, fire, windstorm, drought, earthquake, landslide, mudslide or flood, co uld have an adverse material impact on the economy within the City, its General Fund and the revenues available for the payment of Base Rental Payments.

Earthquakes. All jurisdictions in California are subject to the effects of damaging earthquakes.

According to the Health and Safety Element of the City’s General Plan, the City is located in the seismically active San Francisco Bay region, which has several active seismic faults. The San Andreas fault, one of the longest and most active faults in the world, is located west of the City. Two additional faults closely associated with the San Andreas fault, the Sargent-Berrocal and Monta Vista-Shannon fault systems, also cross the western portion of the City. Movement on the San Andreas fault is predominantly right-lateral strike-slip, where the earth ruptures in a horizontal fashion, with the opposite sides of the fault moving to the right with respect to each other. Movement on the Sargent-Berrocal and Monta Vista-Shannon faults is more variable in style. Both of these faults are characterized by “thrust” faulting, where a significant amount of vertical “up- down” (so called dip-slip) displacement occurs on an inclin ed plane, and one side of the fault is elevated (i.e., thrust over) the other side. Primary ge ologic hazards in the City are relate d to landslides and seismic impacts.

Seismically induced ground shaking, surface fault rupture, and variou s forms of earthquake-triggered ground failure are anticipated within the c ity during large earthquakes. These geologic hazards present potential impacts to property and public safety.

Fire. According to the Health and Safety Element of the City’s General Plan, due to the City’s geographical location, it is exposed to hazards from both wildland and urban fires. There are approximately 16 square miles of hillsides included in and around the boundary of the City. In 2009, based on vegetation data, topography and potential fire behavior, the California Department of Forestry and Fire Protection identified approximately three acres of the City to be in the High and Very Hi gh Fire Hazard Severity Zone. The City adopted this area as its Wildand-Urban Interface Fire Area (“WUIFA”). Properties in the WUIFA are subject to building and property maintenance standards intended to prevent and manage community safety due to brush and forest fires. Planning for such areas also requires attention to the availability of access roads and water for firefighting and evacuation effo rts. No portion of the Leased Pr emises is located within the WUIFA and the urbanized portions of the City are not exposed to a high risk of fire.

Many areas of northern California have suffered from major wildfires in recent years, including numerous wildfires burning since August 2020. In addition to their direct impact on health and safety and property damage in California, the smoke from these wild fires has impacted the quality of life in the Bay Area and the City and may have short-term and future impacts on commercial activity in the City. The fires have been driven in large measure by drought conditions and low humidity. Experts expect that California will continue to be subject to wildfire conditions year over year as a result in changing weather patterns due to climate change.

Flooding. Portions of the City and surrounding areas have been identified as potentially flood prone areas. According to the Health and Safety Element of the City’s General Plan, the watersheds in the Santa Cruz Mountain Range feed into four major streambeds that traverse the City: Permanente Creek, Stevens Creek, Regnart Creek, and Calabazas Creek. Stevens Cr eek and its streamside are among the natural elements that have the most influence on Cupertino’s character. These creeks collect surface runoff and channel it to the San Francisco Bay. However, they also pose potential flooding risks to the City if water levels exceed the top of bank as a result of heavy runoff. No portion of th e Leased Premises is locate d within a 100-year of 500- year flood zone.

47 The occurrence of natural disasters in the City could result in substantial damage to the City and the Leased Premises which, in turn, could substantially re duce General Fund revenues and affect the ability of the City to make Lease Payments or cause an abatement in Lease Payments. Reduced ability to pay Lease Payments could affect the payment of the principal of a nd interest with respect to the Certificates. The Lease obligates the City obtain and keep in force various forms of insurance, including property casualty insurance (for losses other than from seismic events) for the Leased Premises in the event of damage or destruction to the Leased Premises. See “THE CITY OF CUPERTINO—Risk Management” herein. However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers, the City makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy provided for in the Lease. In addition, the City is not required under the Lease Agreement to obtain earthquake and flood insurance.

Hazardous Substances
The City knows of no existing hazardous substances which require remedial action on or near the Leased Premises. However, it is possible such substances do currently or potentially exist and that the City is not aware of them.

Owners and operators of real property may be requir ed by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. Further, such li abilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these po ssibilities could significantly and adversely affect the operations and finances of the Ci ty, may result in the reduction in the assessed value of property, and therefor property tax revenue.

Cybersecurity
The City, like many other public and private entities, relies on a large and complex technology environment to conduct its operations. As a recipien t and provider of personal, private, or sensitive information, the City is subject to multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City’s digital systems for the purposes of misappropriating assets or information or causing operational disruption and damage. To date, the City has not experienced an attack on its computer operating syst ems which resulted in a breach of its cybersecurity systems that are in place. However, no assurances can be given that the City’s efforts to manage cyber threats and attacks will be successful or that any such attack will not materially impact the operations or finances of the City. The City does not carry separate cybersecurity insurance. See “THE CITY OF CUPERTINO— Risk Management” in herein for more information with respect to the City’s insurance coverages.

Limitations on Remedies; Bankruptcy
The rights of the owners of the Certificates are subject to the lim itations on legal remedies against municipalities in the State, including a limitation on en forcement of judgments agai nst funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Certificates, and enforcement of the City’s obligations under the Lease, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor’s rights generally, now or her eafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constituti on, the reasonable and necessary exercise, in certain

48 exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against counties in the State. Bankruptcy proceedings under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceed ings for public agencies such as the City, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Certificates to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. See “RISK FACTORS—Default” herein.

Dependence on State for Certain Revenues
A number of the City’s revenues are collected and dispersed by the State (such as sales tax and motor- vehicle license fees) or allocated in accordance with St ate law (most importantly, property taxes). Therefore, State budget decisions can have an im pact on City finances. In the even t of a material economic downturn in the State, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties.

The COVID-19 pandemic is materially adversely impacting the financial condition of the State. In addition, there are a number of other budget risks that th reaten the financial condition of the State, including the onset of recession and the significant unfunded liabilities of the two main retirement systems managed by State entities, PERS and the California State Teachers’ Retirement System (“STRS”). The State also has a significant unfunded liability with respect to other post-employment benefits.

On June 29, 2020, the Governor signed into law the State budget for fiscal year 2020-21 (the “2020-21 Budget”). The following information is drawn from the DOF’s summary of the 2020-21 Budget.

As with the Governor’s May revision (the “May Revision”) to the proposed State budget, the 2020-21 Budget acknowledges that the rapid onset of COVID-19 has had an immediate and severe impact on the State’s economy. The ensuing recession has caused significant job losses, precipitous drops in family and business income, and has exacerbated inequality. The May Revision forecast included a peak unemployment rate of 24.5% in the second quarter of 2020 and a de cline in personal income of nearly 9%. The 2020-21 Budget reports that the official unemployment rate exceeded 16% in both April and May of 2020.

The 2020-21 Budget includes a numb er of measures intend ed to address a projected deficit of $54.3 billion identified by the May Revision, and occasioned principally by declines in the State’s three main tax revenues (personal income, sales and us e, and corporate). The measures included in the 2020-21 Budget, and described below, are intended to close this deficit and set aside $2.6 billion in the State’s traditional general fund reserve, including $716 million for the State to respond to the changing conditions of the COVID-19 pandemic:
 Draw Down of Reserves – The 2020-21 Budget draws down $8.8 billion in total State reserves, including $7.8 billion from the State’s Budget Stabilization Account (the “BSA”), $450 million from the Safety Net Reserve and all funds in the State’s Public School System Stabilization Account.  Triggers – The 2020-21 Budget includes $11.1 billion in reductions and deferrals that would be restored if at least $14 billion in federal funds are received by October 15, 2020. If the State receives less than this amount, reductions and deferrals would be partially restored. The triggers includes $6.6 billion in deferred spending on education, $970 million in funding for the California State University and University of California systems, $2.8 billion in State employee compensation and $150 million for courts, as well as funding for various other State programs. The triggers would also fund an additional $250 million for county programs to backfill revenue losses.

49  Federal Funds – The 2020-21 Budget relies on $10.1 billion in federal funds, including $8.1 billion of which has already been received. This relief includes recent congressional approval for a temporary increase in the federal government’s share of Medicaid costs, a portion of the State’s Coronavirus Relief Fund allocation pursuant to the CARES Act and federal funds provided for childcare programs.  Borrowing/Transfers/Deferrals – The 2020-21 Budget relies on $9.3 billion in special fund borrowing and transfers, as well as deferrals to K-14 education discussed further herein. Approximately $900 million of special fund borrowing is associated with reductions to State employee compensation and is subject to the triggers discussed above.
 Increased Revenues – The 2020-21 Budget temporarily suspends for three years net operating loss tax deductions for medium and large businesses and limits business tax credits, with an estimated increase in tax revenues of $4.3 billion in fiscal year 2020-21.  Cancelled Expansions, Updated Assumptions and Other Measures – The 2020-21 Budget includes an additional $10.6 billion of m easures, including cancelling multiple programmatic expansions, anticipated governmental efficiencies, higher ongoin g revenues above the forecast included in the May Revision, and lower health and human services caseload costs than assumed by the May Revision.

For fiscal year 2019-20, the 2020-21 Budget projec ts total general fund revenues and transfers of $137.6 billion and authorizes expenditures of $146.9 billion. The State is projected to end the 2019-20 fiscal year with total available general fund reserves of $17 billion, including $16.1 billion in the BSA and $900 million in the Safety Net Reserve Fund. For fis cal year 2020-21, the 2020-21 Budget projects total general fund revenues and transfers of $137.7 billion and authorizes expenditures of $133.9 billion. The State is projected to end the 2020-21 fiscal year with total available general fund reserves of $11.4 billion, including $2.6 billion in the traditional general fund reserve (of which $716 million is earmarked for COVID-related responses), $8.3 billion in the BSA and $450 million in the Safety Net Reserve Fund Current and future State budgets will be significantly affected by the COVID-19 pandemic and other factors over which the City has no control. The City cannot determine what actions will be taken in the future by the State Legislature and the Governor to deal with the COVID-19 pandemic and resulting changing State revenues and expenditures. There can be no assurance that, as a result of the COVID-19 pandemic or otherwise, the State will not significantly reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of its efforts to address State financial conditions. There can be no assurance that State actions to respond to the COVID-19 pandemic will not materially adversely affect the financial condition of the City.

Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the webs ite of the State Department of Finance (the “DOF”), http://www.dof.ca.gov, under the headin g “California Budget.” An impartia l analysis of the budget is posted by the Legislative Analyst’s Office (the “LAO”) at http://www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the cu rrent and past State budgets and the impact of those budgets on cities in the State, may be found at the we bsite of the State Treasurer, http://www.treasurer.ca.gov.

The information referred to is prepared by the respective State agency maintaining each website and not by the City or the Underwriter, and neither the City nor the Underwriter takes any responsibility for the continued accuracy of these Internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.

COVID-19 Pandemic
The COVID-19 Pandemic is materially adversely aff ecting the local, state and world economies. The City cannot currently predict the extent or duration of the outbreak or what ultimate impact it may have on the City’s financial condition or operations, although the City believes it will be material and adverse. See “CITY

50 FINANCIAL INFORMATION—COVID-19 Pandemic” herein for a discussion of current and potential impacts of COVID-19 on the City’s operations and finances.

THE CORPORATION
The Cupertino Public Facilities Corporation is a no nprofit, public benefit corporation duly organized and existing under the laws of the State of California and is entitled to purchase personal and real property and to sell or lease such property, to contract for construction and improvements and to execute operating agreements regarding such property. The Corporation was formed for the purpose of providing financial assistance to public entities by acquiring, constructing, developing and refinancing certain facilities for the use and benefit of the public. The board of directors of th e Corporation is comprised of the members of the City Council of the City.

TAX MATTERS
In the opinion of Stradling Yocca Carlson & Raut h, a Professional Cor poration, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions, interest with respect to the Certificates is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Special Counsel, interest with respec t to the Certificates is exempt from State of California personal income tax.

The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to the Certificate (to the extent the redemption price at maturity is greater than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before r eceipt of cash attributable to such excludable income.

The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial Owner’s basis in the applicable Certificate. In the opinion of Certificate Counsel, the amount of original issue discount that accrues to the Beneficial Owner of the Certificate is excluded from gross income of such Beneficial Owner for federal income tax purposes and is not an item of tax prefer ence for purposes of the federal alternative minimum tax imposed on individuals. In the opinion of Special Counsel, the amount of original issue discount that accrues to the Beneficial Owner of the Certificates is exempt from State of California personal income tax.

Special Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the Certificat es is based upon certain representations of fact and certifications made by the City, the Corporation and others and is subject to the condition that the City and the Corporation comply with all requirements of the Inte rnal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the delivery of the Certificates to assure that interest (and original issue discount) on the Certificates will not become includable in gross income for federal income tax purposes.

Failure to comply with such requirements of the Code might cause the interest (and original issue discount) on the Certificates to be included in gross income for federal income tax purposes retroactive to the date of delivery of the Certificates. The City and the Corporation will covenant to comply with all such requirements.

The amount by which a Beneficial Owner’s original basis for determining loss on sale or exchange in the applicable Certificate (generally, the purchase pric e) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium re duces the Beneficial Owner’s basis in the applicable Certificate (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a Beneficial Owner realizing a taxable gain when a Certificate is sold by the Beneficial Owner for an amount equal to or less (under certain circumstances) than the original cost of the Certificate to the Beneficial Owner. Purchasers of the Certificates

51 should consult their own tax advisors as to the trea tment, computation and coll ateral consequences of amortizable bond premium.

Special Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Special Counsel has no t undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Trust Agreemen t, the Lease and the Tax Certificate relating to the Certificates permit certain acti ons to be taken or to be omitted if a favorable opinion of a Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the effect on the exclusion from gross income for federal income tax purposes of interest (or original issue discount) on any Certificate if any such action is taken or omitted based upon the advice of counsel other than Special Counsel.

Although Special Counsel will render an opinion that interest (and original issue discount) on the Certificates is excluded from gross income for federal income tax purposes provided that the City and the Corporation continue to comply with certain requiremen ts of the Code, the ownership of the Certificates and the accrual or receipt of interest (and original issue discount) with respect to the Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Certificates.

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax- exempt bond issues, including both random and targeted audits. It is possible that the Certificates will be selected for audit by the IRS. It is also possible that the market value of the Certificates might be affected as a result of such an audit of the Certificates (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the delivery of the Certificates to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the Certificates or their market value.

SUBSEQUENT TO THE EXECUTION AND DELIVERY OF THE CERTIFICATES THERE

MIGHT BE FEDERAL, STATE, OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR

REGULATORY CHANGES TO OR INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE, OR LO CAL TAX TREATMENT OF THE Certificates

INCLUDING THE IMPOSITION OF ADDITIONAL FEDERAL INCOME OR STATE TAXES BEING

IMPOSED ON OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE CERTIFICATES. THESE CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE CERTIFICATES. NO ASSUR ANCE CAN BE GIVEN THAT SUBSEQUENT TO

THE EXECUTION AND DELIVERY OF THE CERTIFICATES STATUTORY CHANGES WILL NOT BE

INTRODUCED OR ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT OCCUR HAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF THE

CERTIFICATES, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS

REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR

INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE CERTIFICATES.

The form of Special Counsel’s proposed opinion with re spect to the Certificates is attached hereto in Appendix D.

CERTAIN LEGAL MATTERS
Certain legal matters incident to the authorization, sale, execution and delivery of the Certificates are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel. A complete copy of the proposed form of opinion of Special Counsel is contained in Appendix D hereto. Special Counsel has not undertaken any responsibility to the Owners for the accuracy, completeness or fairness of this Official Statement or ot her offering materials relating to the Certificates and

52 expresses no opinion relating thereto. Certain legal matters will be passed upon for the City and the Corporation by the City Attorney a nd by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, for the Trustee by its counsel, and for the Underwriter by Quint & Thimmig LLP, Larkspur, California. Compensation of Special Counsel is contingent upon the execution and delivery of the Certificates.

Special Counsel represents the City in connection wi th the execution and deliver y of the Certificates.

From time-to-time Special Counsel represents the Underwriter in connection with other financings and matters unrelated to the Certificates. Special Counsel does not represent the Underwrite r or any other party with respect to the execution and delivery of the Certificates other than the City.

LITIGATION
General
To the best knowledge of the City, there is no action, suit or proceeding known to be pending, or threatened, restraining or enjoining the execution or delivery of the Certificates, the Trust Agreement, the Lease, the Site Lease, the Assignment Agreement or any other document relating to the Certificates, or in any way contesting or affecting the validity of the foregoing.

There are a number of lawsuits and claims pending against the City. In the opinion of the City, except as described below under the caption “—Vallco Claim,” such suits and claims as are presently pending will not have a material adverse effect on the ability of the City to make Lease Payments.

Vallco Claim
In 2018, the City approved an application by Vallco Property Owner, LLC (“VPO”), the owner of approximately 50 acres of real property on which th e former Vallco Fashion Mall was located (the “Vallco Site”), for development of approximately 1,810,000 square feet of office space, approximately 400,000 square feet of retail, and approximately 2,402 multi-family housing units, 50 percent of which will be affordable (collectively, the “Vallco Project”). A community group challenged the City’s approval of the Vallco Project (“Community Group Litigation”).

In August 2019, while the Community Group Litigation was pending, the City approved amendments to the General Plan and Zoning Code that would be applicable to development of the Vallco Site if VPO does not build the Vallco Project (collectively, the “Amendments”). Among other things, the Amendments (1) remove office as a permitted use for the Vallco Site, (2) permit 459 residential units by right on roughly 13 acres of the site, and (3) specify 60-foot height limits and other development standards for the site. The City did not change existing General Plan policies that (1) allow commercial uses on the Vallco Site, with a minimum of 600,000 square feet of retail uses, (2) require that 15% of residential units be affordable, and (3) require construction of specified public improvements in connection with development of the site.

In response, VPO submitted a claim under the California Government Tort Claims Act, asserting that an alternative development of the Vallco Site under the Amendments would not be economically feasible and that, with the uncertainty created by the Community Group Litigation against the Vallco Project, the Amendments had radically reduced the value of the Va llco Site. VPO asserted that the Amendments would thus constitute a regulatory taking of the Vallco Site, entitling VPO to just compensation under the United States and California Constitutions. VPO indicated that it would be entitled to hundreds of millions of dollars in damages against the City for the alleged taking.

In May 2020, the Santa Clara County Superior Court rejected the Community Group Litigation challenging the Vallco Project. The community group did not appeal the judgement, and the litigation is now

53 resolved. The City understands that VPO is currently proceeding with design and construction of the Vallco Project. It has commenced demolition and other site-preparation activities and has applied for building permits.

The City believes that while VPO continues to develop the Site under the existing project approval, VPO’s takings challenge to the Amendments would have no merit. However, in the future, VPO could abandon the Vallco Project if VPO determines it is not economically feasible due to market factors, construction or financing costs, or otherwise. In such event, VPO may reassert the takings claim outlined above against the City. In that circumstance, the City would have options to reduce or avoid claimed damages, including further amendments to the General Plan and Zoning Code. If the City left the Amendments in place and VPO were to successfully challenge them and recover damages against the City in the amounts alleged by VPO, it could have a material adverse impact on the C ity’s ability to pay Lease Payments when due, and a corresponding material adverse impact on the Trustee’s ability to make scheduled payments under the Certificates when due.

RATING
S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”) has assigned a rating of “AA+” to the Certificates. Such rating reflects only the views of S&P and any desired explanation of the significance of such rating should be obtained from S&P. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Certificates. Neither the City nor the Underwriter has undertaken any responsibility either to bring to the attention of the owners of the Certificates a proposed change in or withdrawal of the ratings or to oppose any such proposed revision or withdrawal.

UNDERWRITING
The Certificates are being purchased by Stif el, Nicolaus & Company, Incorporated (the “Underwriter”). The Underwriter wi ll purchase the Certificates at an aggregate purchase price of $25,814,163.16 (representing the principal amount of the Certificates, plus original issue premium of $3,878,703.75 and less an Underwriters’ discount of $1 04,540.59). The purchase ag reement relating to the Certificates provides that the Underwri ter will purchase all of the Certificates if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in such purchase agreement, the approval of certain legal matters by counsel and certain other conditions.

The initial offering prices that are stated on the in side front cover page of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer a nd sell the Certificates to certain dealers (including dealers depositing Certificates into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices.

MUNICIPAL ADVISOR
Urban Futures, Inc., Tustin, California, has served as municipal advisor (“Municipal Advisor”) to the City in connection with the Certificates. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.

54 CONTINUING DISCLOSURE
The City has covenanted for the benefit of the Owners of the Certificates to provide, or cause to be provided, annually certain financial information and operating data relating to the Certificates and the City (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events. For a complete listing of items of information which will be provided in each Annual Report and further description of the City’s undertaking with respect to the Annual Report and certain enumerated events, see Appendix E— “FORM OF CONTINUING DISCLOSURE CERTIFICATE.” The Annual Report is to be provided by the City not later than March 31 after the end of the City’s fiscal year, commencing with the report for fiscal year 2019-20.

The Annual Report will be filed by the City with the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”).

The City entered into a prior continuing disclosure undertaking with respect to the 2012 Certificates.

Within the past five years, the City has timely filed the required information with the following exceptions: (1) the Annual Report for Fiscal Year 2018 was filed 89 days late and unaudited financials were not filed in lieu of the audit as required; (2) the document filed as the Annual Report for Fiscal Year 2015 was not the CAFR and, therefore, operating data was also not filed (the Fiscal Year 2015 CAFR was filed in September 2020 along with a failure to file notice, but it did not include all required operating data items).

The City has engaged Urban Futures, Inc. to serve as Dissemination Agent to assist with the City’s continuing disclosure undertaking in connection with the execution and delivery of the Certificates.

FINANCIAL STATEMENTS OF THE CITY
Included herein as Appendix B are the audited financ ial statements of the City as of and for the year ended June 30, 2019 (the “Financial Statements”), together with the report thereon dated March 6, 2020 of Crowe LLP, Costa Mesa, California (the “Auditor”). The Auditor has not undertaken to update the audited financial statements of the City or its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to its report dated March 6, 2020.

55 MISCELLANEOUS
Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or ag reement between the City and the purchasers or Owners of any of the Certificates.

The execution and delivery of this Official Statement has been duly authorized by the City.

CITY OF CUPERTINO
By: /s/ Deborah Feng
City Manager

[THIS PAGE INTENTIONALLY LEFT BLANK]

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APPENDIX A

ECONOMIC AND DEMOGRAPHIC INFORMATION

REGARDING THE CITY OF CUPERTINO
This Appendix A sets forth general information about the City of Cupertino (“Cupertino”) including information with respect to its finances. The following information concerning Cupertino, the County of Santa Clara (the “County”) and the State of California (the “State”) is in cluded only for general background purposes. It is not intended to suggest that the Certificates are payable from any source other than Lease Payments.

The City has not independently verified the information set forth in this Appendix A and while this information is believed to be reliable, it is not guaranteed as to accuracy by the City or the Corporation.

Certain information relating to employment, income and taxable transactions to be released for 2020 can be expected to be materially different from the historical figures set forth in this Appendix A. See “CITY FINANCIAL INFORMATION—COVID- 19 Pandemic Impact” and “RISK FACTORS—COVID-19 Pandemic” in the Official Statement.

Population
The City’s population as of January 1, 2020 was approximately 59,549. This represents an increase of approximately 0.07 percent from January 1, 2019. The following table shows the population for the City, the County and the State of California from 2016 through 2020.

POPULATION
For Years 2015 through 2019
Year
(January 1)
City of
Cupertino
County of
Santa Clara
State of
California
2016 60,225 1,931,565 39,131,307
2017 60,169 1,942,176 39,398,702
2018 59,709 1,951,088 39,586,646
2019 59,504 1,954,833 39,695,376
2020 59,549 1,961,969 39,782,870

Source: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties, and the State, 2011-2019, with 2010 Census Benchmark, Sacramento, California, May 2019.

Education
K-8 public education is provided by Cupertino Union School District, which serves over 18,000 square miles in a 26 square mile area that includes the City and portions of five other cities. The Fremont Union High School District serves 10,000 students in a 42 square mile area covering all of the City and portions of five other cities. De Anza College, a single-campus community college, is located within the City.

Building Activity
Residential and nonresidential building activity for 2014 through 2018 for the City is shown in the following tables.

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NEW HOUSING UNITS BUILDING PERMITS
City of Cupertino
For Years 2015 through 2019
2015 2016 2017 2018 2019
Single Family Units 51 52 56 46 53
Multifamily Units 120 0 15 19 12
Total Units 171 52 71 65 65

Source: Construction Industry Research Board and California Homebuilding Foundation.

BUILDING PERMIT VALUATIONS
City of Cupertino
(Dollars in Thousands)
2015 2016 2017 2018 2019
Residential
New Single Family $ 24,772

$ 22,423 $ 24,765 $ 25,773 $ 44,611
New Multifamily 18,207 0 1,700 10,000 12,900
Res. Alt. & Adds 23,849 19,132 18,865 21,394 25,130 Total Residential 66,828 $ 41, 555 $ 45,330 $ 57,167 $ 82,641

Nonresidential
New Commercial 284,799 304,150 $ 0 $ 0 $ 0
New Industrial 0 0 0 0 0
New Other (1) 1,019,658 280,485 919,984 844,330 403,547 Alters. & Adds. 54,602 77,924 26,357 62,154 235,214 Total Non-Residential $ 1,359,059 $ 662,559 $ 946,341 $ 906,484 $ 638,761

Total All Building $ 1,425,887
$ 704,114 $ 991,671 $ 963,651 $ 721,402

(1) Includes churches and religious buildings, hospitals a nd institutional buildings, school s and educational buildings, residential garages, public works and utilities buildings.

Note: “Total All Building” is the sum of Residential and Nonresidential Building Permit Valuations. Totals may not add to sum because of independent rounding.

Source: Construction Industry Research Bo ard and California Homebuilding Foundation.

Personal Income
Personal Income is the income that is received by all persons from all sources. It is calculated as the sum of wage and salary disbursements, supplements to wages and salaries, proprietors’ income with inventory valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment, personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance.

The personal income of an area is the income that is received by, or on behalf of, all the individuals who live in the area; therefore, the es timates of personal income are presen ted by the place of residence of the income recipients.

The following table summarizes pe r capita personal income for the City, the County, the State of California and the United States for the years 2010 through 2018. This measure of income is calculated as the personal income of the residents of the area divided by the resident population of the area.

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PER CAPITA PERSONAL INCOME(1)
City of Cupertino, County of Santa Clara, State of California, and United States 2010-2019
Year
City of
Cupertino(2)
County of
Santa Clara(3) California (3) United States (3)
2010 $45,828 $ 61,330 $43,634 $40,546
2011 47,756 66,406 46,170 42,735
2012 50,081 72,792 48,798 44,599
2013 51,557 72,927 49,277 44,851
2014 53,311 79,055 52,324 47,058
2015 57,405 86,188 55,758 48,978
2016 59,181 92,505 57,739 49,870
2017 60,246 100,177 60,156 51,885
2018 63,817 107,877 63,557 54,446
2019 69,102 N/A N/A N/A

(1) Per capita personal income is the tota l personal income divided by the total mi d-year population estimates of the U.S.

Bureau of the Census. All dollar estimates are in current dollars (not adjusted for inflation). (2) Based on a fiscal year ending June 30 of each year
(3) Based on a calendar year ending December 31 of each year.

Source: U.S. Department of Commerce, Bureau of Economic Analysis and the City of Cupertino.

Median Household Income
The following table shows the median household income for the City, the County, the State of California and the United States from 2010 through 2018.

MEDIAN HOUSEHOLD INCOME
City of Cupertino, County of Santa Clara, State of California, and United States 2013-2018
Year City of Cupertino
County of
Santa Clara California United States
2010 $120,201 86,850 $60,883 $51,914
2011 124,825 89,064 61,632 52,762
2012 127,534 90,747 61,400 53,046
2013 129,976 91,702 61,094 53,046
2014 158,053 93,854 70,187 53,482
2015 141,953 96,310 61,818 53,889
2016 147,929 101,173 63,783 55,322
2017 153,449 106,761 67,169 57,652
2018 163,954 116,178 71,228 60,293

Source: U.S. Census Bureau, American Community Survey.

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Employment
The civilian labor force in the City totaled 39,200 in 2018, a 1.8 percent increase from 2017. For the past five years the unemployment rate in the City and the County has been below the State of California’s rate.

The following table summarizes the labor force, employment and unemployment figures from 2014 to 2018 for the City, the County, the State of California and the nation as a whole.

LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
Yearly Average for Years 2015 through 2019
Year and Area Labor Force Employment (1) Unemployment (2) Unemployment
Rate (%)(3)
2015
City of Cupertino 28,900 27,900 1,000 3.3%
Santa Clara County 1,013,200 971,100 42,000 4.1
State of California 18,896,500 17,724,800 1,171,700 6.2 United States 157,130,000 148,834,000 8,296,000 5.3

2016

City of Cupertino 29,600 28,500 1,100 3.7%
Santa Clara County 1,028,700 989,900 38,800 3.8
State of California 19,093,700 18,048,800 1,044,800 5.5 United States 159,187,000 151,436,000 7,751,000 4.9

2017

City of Cupertino 29,700 28,700 1,000 3.2%
Santa Clara County 1,039,900 1,006,500 33,400 3.2
State of California 19,312,000 18,393,100 918,900 4.8
United States 160,320,000 153,337,000 6,982,000 4.4

2018

City of Cupertino 29,500 28,700 800 2.7%
Santa Clara County 1,048,800 1,021,500 27,300 2.6
State of California 19,398,200 18,582,800 815,400 4.2
United States 162,075,000 155,761,000 6,314,000 3.9

2019

City of Cupertino 29,800 29,100 700 2.4%
Santa Clara County 1,053,700 1,027,500 26,200 2.5
State of California 19,408,271 18,623,900 784,375 4.0
United States 163,539,000 157,538,000 6,001,000 3.7

(1) Includes persons involved in la bor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; th erefore, it may differ from rates computed from rounded figures in this table.

Note: Data is not seasonally adjusted.

Source: California Em ployment Development Department based on March 2018 benchmark and U.S. Department of Labor, Bureau of Labor Statistics.

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The table below summarizes employment by industry in Santa Clara County from 2015 to 2019.

Service Providing, Professional and Business Services and Trade, Transportation and Utilities are the largest employment sectors in the County.

AVERAGE ANNUAL INDUSTRY EMPLOYMENT 2015-2019
Santa Clara County
2015 2016 2017 2018 2019
Total Farm 3,700 3,900 3,600 3,500 3,100
Total Nonfarm 1,025,200 1,056,700 1,090,100 1,111,700 1,131,800 Total, All Industries 1,028,900 1, 060,600 1,093,700 1,115,200 1,134,900

Goods Producing 203,300 209,300 211,200 217,200 220,900 Mining and Logging 200 300 200 200 200
Construction 42,900 47,600 47,900 48,300 51,000
Manufacturing 160,200 161,300 163,100 168,700 169,700
Service Providing 821,900 847,400 878,900 894,500 910,900 Trade, Transportation and Utiliti es 136,100 137,300 132,000 131,700 129,200 Wholesale Trade 36,800 37,400 32,600 31,900 31,300
Retail Trade 85,100 85, 000 84,500 84,400 82,200
Transportation, Warehousing and Utili ties 14,100 14,800 14,900 15,300 15,700 Information 70,400 74,500 84,600 92,100 100,700
Financial Activities 34,200 35,200 35,800 36,400 37,400 Professional and Business Services 215,200 224,100 236,200 235,900 241,800 Educational and Health Services 154,900 160,600 167,400 171,900 174,000 Leisure and Hospitality 94,500 97,600 102,000 104,200 104,900 Other Services 26,500 27,000 28,400 28,400 28,700
Government 90,100 91,200 92,700 93,800 94,200

Note: The “Total, All Industries” data is not direct ly comparable to the employment data found herein.

Source: State of California, Employment Development Department, Labor Market Information Division, Santa Clara County Annual Average Labor Force and Industry Employment, March 2018 Benchmark.

Industry
The following tables list the largest private and public employers in the City:

MAJOR EMPLOYERS
City of Cupertino
2019
Rank Name of Business Rank Name of Business

1. Apple 11. Insight Solutions Inc.

2. De Anza College 12. Intero Real Estate Scv Inv

3. Seagate Technology Inc 13. Keller Williams Realty

4. Health Care Center at the Forum 14. Sugar CRM Inc

5. Magnet Systems Inc 15. Sunny View Retirement Community

6. All Fab Precision Sheet 16. Target

7. BJ’s Restaurant & Brewhouse 17. Whole Foods Market

8. Coldwell Banker Residential 18. 99 Ranch Market

9. Cupertino Healthcare-Wellness 19. Argonaut Window & Door

10. Forum at Rancho San Antonio 20. Astra Real Estate

Source: City of Cupertino, Comprehensive Annual Financial Report, Fiscal Year Ending June 30, 2019.

A-6

Transportation
The City is served by a network of freeways; In terstate 880 connects the City with the Oakland International Airport and the Port of Oakland. Interstates 280 and 680 provide access to the peninsula and eastern regions of the San Francisco Bay Area and State Route 17 serves to connect the City with the Pacific Coast at Santa Cruz. All of these interstate highways connect to U.S. 101, a major north-south highway linking San Francisco and Los Angeles.

B-1

APPENDIX B

THE CITY OF CUPERTINO AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2019

[THIS PAGE INTENTIONALLY LEFT BLANK]

FISCAL YEAR
2018 - 2019

COMPREHENSIVE ANNUAL

FISCAL YEAR
2018 - 2019

FINANCIAL
REPORT

CITY OF CUPERTINO, CALIFORNIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED JUNE 30, 2019

Prepared by the City of Cupertino Administrative Services Department Finance Division

CITY OF CUPERTINO, CALIFORNIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the year ended June 30, 2019

CONTENTS

INTRODUCTORY SECTION

TABLE OF CONTENTS ..................................................................................................................... i LETTER OF TRANSMITTAL .............................................................................................................. iii ORGANIZATION CHART ................................................................................................................... ix CITY COUNCIL AND DIRECTORY OF CITY OFFICIALS ................................................................ x COMMISSIONS AND COMMITTEES ................................................................................................ xi CERTIFICATE OF AWARD FOR EXCELLENCE IN FINANCIAL REPORTING ............................... xii

FINANCIAL SECTION

INDEPENDENT AUDITOR'S REPORT .................................................................................................... 1

MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) .......................................................... 4

BASIC FINANCIAL STATEMENTS:

GOVERNMENT-WIDE FINANCIAL STATEMENTS:

STATEMENT OF NET POSITION ..................................................................................................... 23 STATEMENT OF ACTIVITIES ........................................................................................................... 24

FUND FINANCIAL STATEMENTS:

GOVERNMENTAL FUNDS:

BALANCE SHEET .............................................................................................................................. 26

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET WITH THE STATEMENT OF NET POSITION ................................................................................................... 27

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES ........................................................................................................................... 28 RECONCILIATION OF THE NET CHANGE IN FUND BALANCES —
TOTAL GOVERNMENTAL FUNDS WITH THE STATEMENT OF ACTIVITIES ............................. 29 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE — BUDGET TO ACTUAL — GENERAL FUND ..................................................................................... 30 BUDGET TO ACTUAL — TRANSPORTATION SPECIAL REVENUE FUND .................................. 31 BUDGET TO ACTUAL — HOUSING DEVELOPMENT SPECIAL REVENUE FUND ....................... 32

PROPRIETARY FUNDS:

STATEMENT OF NET POSITION ..................................................................................................... 34 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION ................ 35 STATEMENT OF CASH FLOWS ....................................................................................................... 36

FIDUCIARY FUND:

STATEMENT OF FIDUCIARY NET POSITION ................................................................................. 38 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION ......................................................... 39

NOTES TO THE BASIC FINANCIAL STATEMENTS .............................................................................. 40

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED):

SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS .............. 74 SCHEDULE OF CONTRIBUTIONS — PENSION ............................................................................. 75 SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS ..................... 76 SCHEDULE OF CONTRIBUTIONS – OPEB ..................................................................................... 77 SCHEDULE OF INVESTMENT RETURNS – OPEB ........................................................................ 78

ii.

CITY OF CUPERTINO, CALIFORNIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT
For the year ended June 30, 2019

CONTENTS (Continued)

OTHER SUPPLEMENTARY INFORMATION:

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE — BUDGET AND ACTUAL - PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND .............. 80 NONMAJOR GOVERNMENTAL FUNDS:

COMBINING BALANCE SHEET ........................................................................................................ 82

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES .................................................................................................... 83

COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES — BUDGET AND ACTUAL ....................................................... 84

NONMAJOR ENTERPRISE FUND:

COMBINING STATEMENT OF NET POSITION ............................................................................... 88

COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN FUND NET POSITION .............................................................................................. 89 COMBINING STATEMENT OF CASH FLOWS ................................................................................. 90 INTERNAL SERVICE FUNDS:

COMBINING STATEMENT OF NET POSITION ............................................................................... 92

COMBINING STATEMENT OF REVENUES, EXPENSES AND
CHANGES IN FUND NET POSITION .............................................................................................. 93 COMBINING STATEMENT OF CASH FLOWS ................................................................................. 94

STATISTICAL SECTION

FINANCIAL TRENDS:

NET POSITION/ASSETS BY COMPONENT — LAST TEN FISCAL YEARS ................................... 97 CHANGES IN NET POSITION/ASSETS — LAST TEN FISCAL YEARS.......................................... 98 FUND BALANCES OF GOVERNMENTAL FUNDS — LAST TEN FISCAL YEARS ......................... 100 CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS —
LAST TEN FISCAL YEARS .............................................................................................................. 101

REVENUE CAPACITY:

ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE
PROPERTY — LAST TEN FISCAL YEARS .................................................................................... 102 DIRECT AND OVERLAPPING PROPERTY TAX RATES — LAST TEN FISCAL YEARS ............... 103 PRINCIPAL PROPERTY TAXPAYERS — CURRENT YEAR AND FIVE YEARS AGO ................... 104 PROPERTY TAX LEVIES AND COLLECTIONS — LAST TEN FISCAL YEARS ............................. 105

DEBT CAPACITY:

RATIOS OF OUTSTANDING DEBT BY TYPE — LAST TEN FISCAL YEARS ................................ 106 DIRECT AND OVERLAPPING BONDED DEBT ................................................................................ 107 LEGAL DEBT MARGIN INFORMATION — LAST TEN FISCAL YEARS .......................................... 108 RATIO OF GENERAL BONDED DEBT — LAST TEN FISCAL YEARS ........................................... 109

DEMOGRAPHIC AND ECONOMIC INFORMATION:

DEMOGRAPHIC AND ECONOMIC STATISTICS — LAST TEN FISCAL YEARS ........................... 110 2018 EMPLOYER RANKING ............................................................................................................. 111

OPERATING INFORMATION:

FULL-TIME EQUIVALENT CITY EMPLOYEES BY
FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ................................................................. 112 OPERATING INDICATORS BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ................ 113 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM — LAST TEN FISCAL YEARS ........... 114

COMMUNITY PROFILE
iii.

March 6, 2020

To the Citizens of Cupertino, Honorable Mayor,
Members of the City Council, and City Manager

It is our pleasure to submit the Comprehensive Annual Financial Report (CAFR) for the City of Cupertino (the City) for the fiscal year ended June 30, 2019. The report is prepared in accordance with generally accepted accounting principles (GAAP) set by the Governmental Accounting Standards Board (GASB).

The report presents City information on an entity-wide basis and on a more detailed fund level basis. The fund-level reports emphasize the City’s major funds. A Management Discussion and Analysis (MD&A) presents a comparative analysis of current and prior year results, changes in financial position, a comparison of actual versus budget, financial highlights, trends, and disclosure of any known significant events or decisions that affect the financial condition of the City. This transmittal letter is designed to complement the MD&A and should therefore be read in conjunction with it. The MD&A is required supplementary information and is found in the Financial Section of the CAFR.

The accuracy of the data presented and the completeness and fairness of the presentations, including all disclosures, are the responsibility of the management of the City. To provide a reasonable basis for making these representations, management has established a comprehensive internal control framework that is designed to protect the City’s assets and provide sufficient, reliable information for the proper preparation of these financial statements. We believe the data is accurate in all material respects and is presented in a manner that fairly sets forth the City’s financial position. Furthermore, we believe that all disclosures necessary to enable the reader to gain an understanding of the City’s financial activity have been included.

REPORTING ENTITY

This CAFR includes all component units and funds of the City. It reports all activities for which the City is considered to be financially accountable. The general governmental funds support a full range of services, including law enforcement, community development, recreation, public works, public and environmental affairs, and general administration. Enterprise funds account for recreation and solid waste operations supported by user fees. This financial report incorporates data for the City of Cupertino and its component unit, the Cupertino Public Facilities Corporation.

The City operates under a Council-City Manager form of government. There are five council members, including the Mayor, who serve staggered four-year terms. The City Council appoints the City Manager who is responsible for the daily administration of City affairs. The City Council also appoints the City Attorney and the City Treasurer. All other employees are appointed by the City Manager.

CITY OF CUPERTINO

CITY HALL
10300 TORRE AVENUE • CUPERTINO, CA 95014-3202
(408) 777-CITY • WWW.CUPERTINO.ORG
iv.

ECONOMIC CONDITIONS

The City of Cupertino is located in Santa Clara County at the southern end of the San Francisco Bay Peninsula. The City is comprised of 13-square miles and is bordered by the cities of San Jose, Saratoga, Sunnyvale, Santa Clara, and Los Altos. It has a residential population of 63,344 (based on 2019 Claritas estimated data).

Situated at the west end of Silicon Valley, Cupertino has earned the reputation of a balanced community with a healthy climate for business and well-maintained residential neighborhoods, community parks and public facilities. The excellent reputation of Cupertino’s schools is a major attraction for families wishing to settle in close proximity to high paying jobs in Silicon Valley. The City recognizes the importance of quality school facilities and programs to all Cupertino residents, and works in partnership with the schools in many programs affecting education and youth. National surveys rank the City high in education levels, average household incomes, and registered patent numbers, as well as one of the best cities in which to live and raise a family.

Cupertino is the corporate headquarters of several notable companies including Apple Inc., Seagate Technology, CRC Health, DURECT, Mirapath, Bromium, and SugarCRM Inc., and home to many other well-known firms, such as Altia Systems, Cinarra, Pepperdata, Panasonic Ventures, and Ducati North America. Other major employers include DeAnza College, one of the largest single-campus community colleges in the country, the Fremont Union High School District, and Cupertino Union School District.

Cupertino is excited to have a number of new mixed-use development providing more retail and dining options, as well as providing additional housing opportunities to meet the needs of the growing community.

The Main Street Cupertino and Nineteen800 mixed-use developments have created a vibrant downtown area for Cupertino, offering a large selection of restaurants and retailers, including Alexander’s Steakhouse, Eureka!, Pacific Catch, Rootstock Wine Bar, Oren’s Hummus, Lazy Dog, Chef Hung, Philz Coffee, HaiDiLao Hot Pot Restaurant, Pressed Juicery, Orangetheory, 85 Degree Bakery, Target Express, Steins Beer Garden, Kula Sushi, Vitality Bowls, Doppio Zero, Koja Kitchen, and Somi Somi. Housing, office, and a new Residence Inn by Marriott are available to support the thriving area. Benihana, Bowlmore, and Ice Center Cupertino also serve as anchors to the area.

The construction of new retail and commercial development strengthens existing popular venues in Cupertino, including The Marketplace. The Marketplace has a variety of stores and restaurants popular with students, families, and working professionals. They include Daiso, Marukai Groceries, Super Cue, La Patisserie Bakery, Beard Papa’s, Legend’s Pizza, Galpao Gaucho, Merlion Restaurant, Icicles, Garlic Mediterranean Grill, Rori Rice, and Erik’s DeliCafé.

Cupertino Village is undergoing renovations to upgrade existing buildings, construct new buildings, parking, and open-courtyard space. The shopping center is home to 99 Ranch Market, Starbucks, JSJ Street Kitchen, Creamistry, MOD Pizza, Ten Ren Tea, Fantasia Coffee & Tea, Happy Lemon, Joy Luck Palace, Kee Wah Bakery, Duke of Edinburgh, and many other restaurants, bakeries, and shops.

Cupertino features many other retail opportunities, including TJ Maxx and Home Goods, Whole Foods, Stein Mart, Pet Club, Sleep Number, Target, and over 180 restaurants to serve residents and the local workforce. There are now seven hotels providing over 1,000 rooms, to serve the area: The Aloft Cupertino, Cupertino Hotel, Hilton Garden Inn, Juniper Hotel operated by Curio, Marriott Courtyard, the Residence Inn by Marriott, and the newest addition is the Hyatt House.

The redevelopment of the Homestead Square Shopping Center, located at Homestead Road and De Anza Boulevard, includes a 24-hour Safeway, Ulta Beauty, Ross Stores, Stein Mart, Pet Club, Michael’s, Rite Aid, FedEx Kinko’s and numerous restaurants, such as Fish’s Wild, Pho Hoa Noodle Soup, Yayoi Teishoku Japanese Restaurant, Starbucks, and Chipotle.

Apple completed construction of its new corporate campus, Apple Park, which includes approximately 2.8 million square feet of office and R&D space north of Highway 280 between Wolfe Road and Tantau Avenue. A state of the art Visitors Center, Observation Deck, flagship retail store and café are open to the public seven days a week.

According to the 2019-2020 Assessor’s Annual Report for Santa Clara County, Cupertino’s net assessment roll growth increased nearly $831 million, or 3.3%, from the prior year. Approximately $470 million and $46 million of the increase was attributable to changes in ownership for single family housing and multifamily housing, respectively. Approximately $58 million and $19 million of the increase was attributable to changes in new construction for single family housing and multifamily housing, respectively.

Additionally, commercial and industrial increased by $20.9 million, or 0.3%, and $56.9 million, or 7.6%, respectively.

The City’s sales tax revenues are generated from five principal economic categories: business-to-business

67.0% (includes electronic equipment and software manufacturers and distributors), state and county pools 17%, restaurants and hotels 6%, general retail 4%, and fuel and service stations 3%.

Our two largest sales tax payers in the business-to-business category represent a large part of that sector and therefore can significantly affect sales tax trends. The top tax payer’s corporate and business technology spending has driven growth in this sector. Sales tax activity has increased across most sectors with a decrease primarily in construction. This decrease is attributed to the winding down of construction projects in the City, particularly, the Apple Park campus development. Given these trends, the City’s FY 2019-20 sales tax revenue is projected to show a more modest increase going forward.

Sales Tax Trend

FY 2009-10 showed a significant decline due to Hewlett Packard’s move from Cupertino. Continued economic growth driven primarily by the business to business sector continued through FY 2014-15 until a slight $400,000 decline in FY 2015-16 due to a one-time clean up payment from the previous year received in FY 2016-17. FY 2016-17 increased significantly with a $3.5 million “triple-flip” close-out payment. There was a modest decrease in FY 2017-18 which was again attributable to the one-time “triple- flip” close-out payment from FY 2016-17 that was not received in FY 2017-18. Despite the fluctuation, the sales tax base experienced strong growth. FY 2018-19 experienced a slight decrease due to the tapering $0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
vi.

of localized sales tax dollars from construction and completion of Apple Campus 2 which further indicates a return to normalcy in respect to previous years. Additionally, the City received a one-time quarterly clean-up payment in FY 2017-18 of $1.6 million that contributed to the comparative decrease in FY 2018-

19. With the economic recovery and easing of credit, commercial development activity picked up considerably in 2012-13 and 2013-14 led by plan reviews of the new Apple Campus 2. Plans for the redevelopment of the Marina shopping center into a mixed-use project, Marina Plaza, was approved in 2016. This project will include 23,000 SF of retail and restaurant use, a 122-room boutique hotel, and 188 residential units including 16 below market rate units. Construction of a five story, 148-room Hyatt House hotel was completed in April 2019 and includes a full-service restaurant and meeting rooms.

Through the City’s new General Plan Amendment (GPA) Authorization Process applications for two development projects were authorized by City Council in August 2017: Cupertino Hotel and Cupertino Village Boutique Hotel. Proposed room counts are 156 and 185 respectively.

The City’s pension and retiree medical unfunded actuarial accrued liabilities are discussed in the Notes to the Basic Financial Statements. The City must pay CalPERS, the state’s government pension system, annually to reduce its long-term liability for pensions. Cupertino’s pension actuarial valuation report of June 30, 2018 reported a pension unfunded accrued liability of $47.5 million with annual payments to CalPERS of 29.8% and 28.6% of payroll for 2020-21 and 2019-20, respectively, with ongoing increases after that because of actuarial assumption changes. To address long-term rising costs, Cupertino and state law has reduced pension benefits for new hires and increased employee contributions. As of the June 30, 2019 GASB 74/75 report, the City has a retiree medical unfunded liability of ($1,145,000) with annual payments to a retiree health plan trust at (5.7%) of payroll.

In fiscal year 2017-18, the City Council approved the establishment of a Section 115 trust as part of a pension rate stabilization program. An initial investment of $8,000,000 was made in FY 2018-19 and additional on-going contributions to the trust will be appropriated on an annual basis.

Because the City contracts out police services to the County Sheriff and because fire protection is handled by a special district, the City avoids the high pension, capital, and operating costs of a City-operated public safety function. The City caps its contributions to employee health insurance premiums that benefit both the City and employees. A build-up of operating reserves from strong revenue years, such as 2013-14, along with a traditional under-spending of budgets, enables the City to withstand weak revenue years that occur periodically, such as in 2009-10.

ECONOMIC INITIATIVES

With the expanded Apple presence, the City’s revenue base will remain concentrated among its top companies and top economic sector, the volatile business-to-business area. Past recessions and the historic departure of a major tax provider, Hewlett-Packard, demonstrates the need for diversification of the City’s revenue base and a long-term balance of revenues and expenditures. The City desires other revenues to mitigate the fluctuating nature of sales taxes, hotel taxes, user fees, and state grabs of local taxes in times of budget distress.

Legislation raising the City’s property tax share, the update of the utility user tax, the increase in the transient occupancy tax, and refinancing of the City’s debt are past successes to help diversify and balance revenues and expenditures. The City Council work program underway in 2018-2019 describes economic development and administrative initiatives to further increase the City’s property tax share; streamline City web content and permitting for new businesses; continue sponsoring seminars and workshops for new small vii.

businesses; increase coordination with the Chamber of Commerce and other regional business organizations; strengthen shop local habits of residents and daytime visitors; and enhance business access to City services.

ACCOUNTING AND BUDGETARY CONTROL

In developing and evaluating the City’s accounting system, consideration is given to the adequacy of internal accounting controls. The City’s controls are designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets against losses from unauthorized use or disposition and the reliability of financial records for preparing financial statements and maintaining accountability of assets.

The concept of reasonable assurance recognizes that the costs of a control should not exceed the benefits likely to be derived and that the evaluation of costs and benefits requires estimates and judgments by management.

The City’s budget is a detailed operating plan that identifies estimated costs and results in relation to estimated revenues. The budget includes 1) the programs, projects, services and activities to be provided during the fiscal year; 2) estimated revenue and fund balance available to finance the operating plan; and 3) the estimated spending requirements of the operating plan. The budget represents a process through which policy decisions are made, implemented and controlled.

INDEPENDENT AUDIT

City ordinance requires an annual audit of the financial records by an independent certified public accounting firm selected by the City Council and its audit committee. Crowe LLP audited the City’s Basic Financial Statements, and their opinion thereon is included in the Financial Section of this report.

FRAUD INVESTIGATION

On September 5, 2018 the Santa Clara County Sheriff’s Office arrested former City of Cupertino employee Jennifer “Yuen-Cheng” Chang, Senior Accountant, for her role in the embezzlement of public funds. It is believed that Ms. Chang issued and cashed numerous fraudulent checks between 2000 and 2014 for a total of $791,494.

The scheme ended in September 2014 right before the implementation of an upgraded financial system in December 2014 that tightened internal controls. Ms. Chang, who was hired by the City in 1997, retired in July 2015.

The checks were uncovered earlier this year by staff during a multi-year, detailed review of several accounts—including payroll, bank reconciliations, and deposits—which began after the implementation of the new financial system in fiscal year 2014-2015. The checks were found debited against a liability account and deemed suspicious due to their nature, size, and lack of supporting documentation.

The Santa Clara County Sheriff’s Office submitted its case to the Santa Clara County District Attorney’s Office for the issuance of a warrant for Ms. Chang. The California Attorney General has brought forward 68 criminal charges against Ms. Chang. The City of Cupertino is seeking full restitution from Ms. Chang through upcoming criminal and civil proceedings.

At the Preliminary Hearing on December 10, 2019, Judge Pennypacker ruled that Ms. Chang will have to stand trial on 53 felony counts. The counts include Grand Theft and Computer Intrusion for the period September 28, 2000 to September 5, 2014, and Embezzlement for the period July 22, 2011 to September 5, 2014. Because Ms. Chang’s bank does not save documents from prior to 2011, the State cannot prove an viii.

element of the crime of embezzlement. Currently, the Judge set the case for an arraignment for further decision. It is the City’s position to support prosecution to the fullest extent of the law, including full restitution and jail time if criminal liability is found.

Among other internal controls maintained by the City over its financial records, in addition to the upgraded financial system in December 2014 that tightened internal controls, the City also hired additional accounting staff to enhance segregation of duties as well as internal audit function that has been approved for implementation in fiscal year 2019-20.

CERTIFICATE OF ACHIEVEMENT

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Cupertino for its CAFR for the year ended June 30, 2018. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized CAFR. This report must satisfy both GAAP and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that the current report continues to meet the Certificate of Achievement Program’s requirements.

Respectfully submitted,

Zach Korach
Finance Manager

ACKNOWLEDGMENTS

I would like to express my appreciation to City employees, department heads, the City Manager, members of the Audit Committee, and members of City Council for their interest in conducting the financial operations of the City in a responsible manner. Special thanks go to Yulia Rumalean, Tina Mao, Thomas Leung, Zeng Wang, Min Zhao, Jumaini Judoprasetijo and Amber Chang of the Finance staff for their continued support and dedication. Special recognition to Beth Viajar, Richard Wong, Giang Dinh, and Mariela Vargas for their efforts in the preparation and production of this report.

Reviewed by,

Kristina Alfaro
Director of Administrative Services

Citizens of
Cupertino
City C
ouncil
Committees and
Commissions
City Attorney City Manager City Treasurer
City Clerk Public Affairs Sustainability
Programs
Law Enforcement
(Santa Clara County
Sherriff – Contract)
Administrative
Services
Community
Development
Recreation and
Community Services Public Works
Innovation &
Technology
Code Enforcement
Finance Building Recreation &
Education
Capital Improvement
Program Transportation GIS Infrastructure
Human Resources Planning Sports, Safety &
Outdoor Recreation
Development
Services
Environmental
Programs Video Applications
Econom
ic
Development
Business &
Community Services Service Center
Code E
nforcement
(Zoning & Building)

Grounds Streets Trees & ROW Facilities & Fleet
Housing
ix.

CITY OF CUPERTINO, CALIFORNIA
Fiscal Year 2018-19
CITY

COUNCIL

DIRECTORY OF CITY OFFICIALS
Debor
ah L. Feng – City Manager
Timm Borden – Assistant City Manager
Heather Minner – City Attorney (Contract)
Bill Mitchell – Chief Technology Officer
Kristina Alfaro – Director of Administrative Services
Ben Fu – Director of Community Development
Roger Lee – Director of Public Works
Jeff Milkes – Director of Parks and Recreation
Rod Sinks
Council member
Darcy Paul
Council member
Jon Willey
Council member
Steven Scharf
Mayor
Liang Chao
Vice Mayor
x.

CITY OF CUPERTINO, CALIFORNIA
Fiscal Year 2018-19
COMMI

SSIONS AND COMMITTEES

BICYCLE PEDESTRIAN

COMMISSION
Erik Lindskog
Gerhard Eschelbeck
Jennifer Shearin
Muni Madhdhipatla
Pete Heller

FINE ARTS

COMMISSION
Diana Matley
Janki Chokshi
Rajeswari Mahalingam
Sonia Dhami
Sudha Kasamsetty

HOUSING

COMMISSION
Connie Cunningham
John Zhao
Nina Daruwalla
Sue Bose
Vacant

LIBRARY

COMMISSION
Amando Wo
Christie Wang
Liana Crabtree
Qin Pan
Rahul Vasanth
PARKS

AND RECREATION

COMMISSION
Gopal Kumarappan
Helene Davis
Judy Wilson
Neesha Tambe
Xiangchen Xu

PLANNING C OMMISSION
Alan Takahashi
David Fung
Kitty Moore
R “Ray” Wang
Vikram Saxena
PUBLIC

SAFETY COMMISSION
Andy Huang
Hymanand Nellore
Neha Sahai
Robert McCoy
Yvonne Chao

SUSTAINABIL
ITY

COMMISSION
Angela Chen
Anna Weber
Gary Latshaw
Meera Ramanathan
Vignesh Swaminathan
TEEN

COMMISSION
Emily Chan
Juliet Shearin
Kelly Tung
Krithika Venkatasubramanian
Madhavan Krishnan
Sarah Tan
Tanvi Khot
Varsha Subramanyam
Vanitha Vemula

TECHNOLOGY,

INFORMATION
& COMMUNICATIONS

COMMISSION
Arnold de Leon
Ilango Ganga
Naidu Bollineni
Prabir Mohanty
Rajaram Soundararajam

AUDIT COMMITTEE
Darcy Paul
Eno Schmidt
Jim Luther
Mingming (Daisy) Liang
St
even Scharf

DESIGN REVIEW COMMITTEE
David Fung
Vikram Saxena

ENVIRONMENTAL REVIEW

COMMITTEE
Benjamin Fu
Darcy Paul
Kitty Moore
Roger Lee
Deb Feng

LEGISLATIVE REVIEW

COMMITTEE
Liang Chao
Steven Scharf
xi.

Certificate of
Presented to
City of Cupertino
For its Comprehensive Annual
June 30, 2018
Executive Director/CEO
Financial Report
for the Fiscal Year Ended
Reporting
in Financial
for Excellence
Achievement
Text38:

California
Government Finance Officers Association
xii.
(Continued)

1. INDEPENDENT AUDITOR'S REPORT
To the Honorable Mayor and City Council
City of Cupertino, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Cupertino, California (City) as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards , issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

(Continued)

2. Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2019, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund, the Transportation Special Revenue Fund, and the Housing Development Special Revenue Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, and the required supplementary information section on pages <> and <> be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, other supplementary information section, statistical section and community profile are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The other supplementary information section is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary section is fairly stated, in all material respects, in relation to the basic financial statements as a whole.

The introductory section, statistical section and community profile has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them.

3. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 6, 2020 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

Crowe LLP
Costa Mesa, California
March 6, 2020

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

4 This section describes the City of Cupertino’s financial performance for the year. Readers are encouraged to consider the following information in conjunction with the accompanying Transmittal Letter and Basic Financial Statements.

2018-19 FINANCIAL HIGHLIGHTS

 The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the fiscal year 2019 by $275.7 million (net position). Of this amount, $57.9 million represents unrestricted net position, which may be used to meet the City’s ongoing obligations to citizens and creditors.
 City revenues have decreased slightly in 2018-19 with base governmental revenues showing a $0.1 million decrease, or 0.1%, over 2017-18. The primary fluctuations include a decrease in total cost allocation charges and operating grants and contributions that were offset with increases in general revenues. According to the 2019-2020 Assessor’s Annual Report for Santa Clara County, Cupertino’s net assessment roll growth increased nearly $831 million, or 3.3%, from the prior year.

Approximately $470 million and $46 million of the increase was attributable to changes in ownership for single family housing and multifamily housing, respectively. Approximately $58 million and $19 million of the increase was attributable to changes in new construction for single family housing and multifamily housing, respectively. Although sales tax has historically grown year over year, the City experienced a decrease of approximately $1.3 million, or 4.8% over the previous year. This is primarily due to the winding down of construction at Apple Park as well as a “cleanup” payment received in fiscal year 2017-18 that was not received in FY 2018-19. Overall, the City experienced relatively minor declines over the previous fiscal year in business and industry as well as autos and transportation sectors; however, saw continued growth in all other sectors. With the opening of the Marriott and Hyatt House hotels, transient occupancy tax experienced significant growth of $2.1 million, or 30.7%, over the previous fiscal year.
 The City continued to make substantial investment into capital projects dedicated to street and transportation improvements, storm drain improvements, and maintenance of and improvements to City facilities, resulting in an increase in net capital assets of $860,000, after depreciation.  The City’s change in net position was $17.4 million for governmental activities and $15.8 million in total, reflecting the continued growth of revenues and modest departmental spending.  The City’s Net Pension Liability for June 30, 2019, was $40.9 million, down $0.3 million from June 30, 2018, or 0.6%. The Plan Fiduciary Net Position as a Percentage of the Total Pension Liability for the City’s pension plan with CalPERS went from 67.8% to 69.6%. During fiscal year 2018-19, the City Council approved an $8.0 million contribution to the City’s recently established pension rate stabilization program (Section 115 Trust). Annual contributions to this trust will continue on an annual basis and as part of the City’s budget process. In accordance with guidance under GASB 67/68, the assets in the Section 115 Trust are reported as restricted cash and investments in the City’s General Fund. While the Section 115 Trust qualifies as a “trust,” the assets in the Section 115 Trust are not used to directly pay benefits to beneficiaries; rather, they are used to pay CalPERS via the CERBT Trust and as a result, the activities are not required to be reported in a fiduciary fund.  Business-type activities contributed $6.7 million to citywide revenues totaling $102.6 million, while the same activities contributed over $8.3 million to citywide expenses of $86.7 million.  The City implemented the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, during the fiscal year 2017-18. This statement requires governments to report a liability on the face of the financial statements for the OPEB provided by the City. As of June 30, 2019, the City reported a Net OPEB Asset of $1,145,000 and Deferred Inflows of Resources related to OPEB of $1.8 million. As of June 30, 2019, the City’s OPEB plan had a funding ratio or funded ratio or status of 104.0%.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

5 OVERVIEW OF THE FINANCIAL STATEMENTS

The discussion and analysis is intended to serve as an introduction to the City’s Basic Financial Statements. The Basic Financial Statements are comprised of the City-wide Financial Statements, the Fund Financial Statements, and the notes to the Basic Financial Statements. These two sets of financial statements provide two different views of the City’s financial activities and positions.

The City-Wide Financial Statements provide a long-term view of the City’s activities as a whole, and comprise the Statement of Net Position and the Statement of Activities. These statements are prepared on the accrual basis, which means they measure the flow of all economic resources of the City as a whole. The accrual basis of accounting is similar to the accounting used by most private sector companies. The Statement of Net Position provides information about the financial position of the City as a whole, including all its capital assets and long-term liabilities. The Statement of Activities provides information about all the City’s revenues and expenses, with the emphasis on measuring net revenues and expenses for each of the City’s programs. The Statement of Activities explains in detail the change in net position for the year. Over time, increases or decreases in net position can be indicators of whether the financial condition of the City is improving or deteriorating.

All of the City’s activities are grouped into Governmental activities and Business-type activities, as explained below. The Statement of Net Position and the Statement of Activities provide a summary of these two types of activities for the City as a whole.

 Governmental activities —Most of the City’s basic services are considered to be governmental activities, including public works, law enforcement, community development, recreation, public & environmental affairs, and general administration. These services are supported by general City revenues such as property, sales and other taxes, and by specific program revenues such as developer fees and grants.

The City’s governmental activities include the activities of a separate legal entity, the Cupertino Public Facilities Corporation (the “Corporation”), because the City is considered to be financially accountable for the Corporation. The City leases its major facilities from the Corporation, which then uses the lease payments to pay principal and interest on the Corporation’s long-term debt.

 Business-type activities —All of the City’s enterprises are reported here, including solid waste management and most of the City’s recreational operations. Unlike governmental services, these services are supported by charges paid by users based on the amount of services used.

The Fund Financial Statements report the City’s operations in more detail than the City-wide Financial Statements and focus primarily on the short-term activities of the City’s General Fund and other major funds. The Fund Financial Statements measure only current revenues, expenditures, assets, liabilities, and deferred inflows and outflows of resources; they exclude long-term assets and liabilities. Because these statements focus on the near-term inflows and outflows of spendable resources, such information may be useful in evaluating near-term financing requirements.

The Fund Financial Statements provide detailed information about each of the City’s most significant funds, called major funds. Cupertino’s Fund Financial Statements include governmental, enterprise and internal service funds as discussed below. Each major fund is presented individually, with all non-major funds summarized and presented only in a single column. Subordinate schedules, which follow the Notes to Basic Financial Statements, present the detail of these non-major funds. Major funds present the significant activities of the City for the year, and may change from year to year as a result of changes in the pattern of City’s activities and public interest. For example, the Capital Improvement Projects Fund may or may not appear as a major fund depending on the volume of construction activity in a certain year.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

6 Governmental Fund financial statements are prepared on the modified accrual basis, which means they measure only current financial resources and uses. They present essentially the same functions reported as governmental activities in the city-wide financial statements. However, capital assets and other long- lived assets, along with long-term liabilities, are not presented in the Governmental Fund financial statements. Reconciliations are provided to facilitate a comparison between governmental funds and governmental activity statements to allow a better understanding of the long-term impact of the government’s near-term financial decisions.

Comparisons of budget and actual financial information are included in the Basic Financial Statements for the General Fund and other major Special Revenue Funds. For other nonmajor funds, budgetary comparison schedules for these funds are included in this document as supplemental information only.

Enterprise and Internal Service Fund financial statements are prepared on the full accrual basis and include current and long-term assets and liabilities and deferred outflows and inflows of resources.

Enterprise funds are used to report the same functions presented as business-type activities in the City- wide Financial Statements, and in more detail in the Fund Financial Statements.

Since the City’s Internal Service funds provide goods and services only to the City’s governmental and business-type activities, their activities are reported only in total at the fund level. Internal Service funds may not be major funds because their revenues are derived from other City funds. These revenues are eliminated in the City-wide financial statements and any related profits or losses are returned to the activities which created them, along with any residual net position of the Internal Service funds. For this City, internal service activities predominantly benefit governmental rather than business-type functions, and are therefore included within governmental activities in the City-wide Financial Statements.

Fiduciary Fund financial statements are prepared on the full accrual basis and include current and long- term assets and liabilities and deferred outflows and inflows of resources. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds activities are excluded from the City’s government-wide financial statements because the City cannot use these assets to finance its own operations.

The City maintains an OPEB Pension Trust Fund that is used to account for the assets and liabilities held in trust for the retirees’ post-employment health benefits.

The Notes to Basic Financial Statements provide important additional detail that is essential to a full understanding of the data reported in the City-wide and Fund Financial Statements.

CITY-WIDE FINANCIAL ACTIVITIES

This analysis focuses on the net position and changes in net position of the City’s Governmental Activities (Tables 1 and 2) and Business-Type Activities (Tables 3 and 4) as presented in the City-wide Statement of Net Position and the Statement of Activities.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

7 Governmental Activities

Table 1
Condensed Statement of Net Position at June 30
(in thousands)

Governmental Activities
2019 2018
Assets:

Cash and investments $ 132,532 $ 133,439

Restricted cash and
investments 12,412 -
Other assets 9,851 8,490
Capital assets 195,971 194,832
Total assets 350,766 336,761

Deferred Outflows of Resources:

Related to Pension (Note 10) 8,088 10,006

Liabilities:

Long term debt 29,300 31,520
Other liabilities 59,662 63,641
Total liabilities 88,962 95,161

Deferred Inflows of Resources:

Related to Pension (Note 10) 638 280
Related to OPEB (Note 11) 1,685 1,189

Total deferred inflows of
resources 2,323 1,469

Net Position:

Net Investment in capital assets 170,974 167,606
Restricted 45,405 32,073
Unrestricted 51,190 50,458
Total net position 267,569 250,137

The City’s change in net position from governmental activities was $17,431,990. The following significant changes within assets, liability, and net position categories occurred:

 The City made an $8 million contribution to its Section 115 Trust as part of the City’s pension rate stabilization program. Cash held by fiscal agents for debt service is also included in the $12.4 million of restricted cash and investments. In accordance with guidance under GASB 67/68, the assets in the Section 115 Trust are reported as restricted cash and investments in the City’s General Fund. While the Section 115 Trust qualifies as a “trust,” the assets in the Section 115 Trust are not used to directly pay benefits to beneficiaries; rather, they are used to pay CalPERS via the CERBT Trust and as a result, the activities are not required to be reported in a fiduciary fund.
 Other assets increased by approximately $1.4 million, primarily due to the actuarily-derived Net OPEB Asset of $1.1 million.
 Capital assets increased approximately $1.1 million. This consisted of continued significant capital investment into capital projects dedicated to street and transportation improvements, storm drain improvements, and maintenance of and improvements to City facilities that was offset with current year depreciation expense.
 Other liabilities decreased by approximately $4 million, primarily due to a $3.5 million decrease in deposit liability balance resulting from the completion and/or progression of

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

8 various projects such as Apple Campus 2. Additionally, accounts payable and accruals decreased approximately $1 million due to timing and quantity of services rendered and invoices received from one fiscal year to the next.

 Deferred Outflows Related to Pension decreased $1.9 million primarily due to actuarial changes of assumptions. Deferred Inflows of Resources Related to Pension and OPEB increased $358 thousand and $496 thousand, respectively, also due primarily to actuarial changes of assumptions.

Sources of Revenue, Governmental Activities
2018-19

In 2018-19, the City experienced continued trends toward a return to normalcy. Revenues decreased $0.1 million from the prior year, primarily due to decreases in functional program revenues offset with increases in general revenues.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

9 Functional Expenses, Governmental Activities
2018-19

The Statement of Activities presents program revenues, expenses, general revenues, and the resulting change in net position as summarized in the next table.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

10 Table 2
Condensed Statement of Activities for the Year Ended June 30 (in thousands)

Governmental Activities
Expenses 2019 2018
Administration $ 6,849 $ 5,613
Law enforcement 13,381 12,674
Innovation & technology 3,210 3,245 Administrative services 4,290 4,416 Recreation and community services 7,390 9,353 Community development 10,471 16,789 Public works 31,872 28,995
Interest on long-term debt 949 993 Total expenses 78,412 82,078

Revenues
Program revenues:

Charges for services 18,861 23,340 Operating grants and contributions 2,557 4,820 Capital grants and contributions 1,082 272 Total program revenues 22,500 28,432 General revenues:

Taxes:

Property tax 17,082 14,882
Property tax in-lieu of motor vehicle fee 8,219 7,552 Sales tax 24,902 26,165
Transient occupancy tax 8,901 6,811 Utility user tax 3,090 3,146 Franchise tax 3,445 3,564
Other taxes 3,300 1,944
Intergovernmental, unrestricted:

Motor vehicle license fee 29 31 Investment earnings 3,259 916 Gain on sale of capital assets 4 741 Miscellaneous 1,187 1,834 Total general revenues 73,418 67,586 Total revenues 95,918 96,018

Excess of revenues over expenses,
before transfers 17,506 13,940
Transfers (Note 4) (75) 107

Change in net position 17,431 14,047

Beginning net position 250,138 236,091
Ending net position $ 267,569 $ 250,138

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

11 City-wide Governmental Activities Revenues

Table 2 shows that revenues from governmental activities decreased $0.1 million or 0% from last year, finishing at $95.9 million. The decreases in functional program revenues are attributable to a gross amount reduction in the City’s cost allocation plan and operating grants and contributions. This decrease was offset by increases and fluctuations in general revenues, namely, property tax, sales tax, transient occupancy tax, and investment earnings as further discussed below.

Increases in the City’s general revenues are attributable to a $2.2 million increase in property tax over the prior year. According to the 2019-2020 Assessor’s Annual Report for Santa Clara County, Cupertino’s net assessment roll growth increased nearly $831 million, or 3.3%, from the prior year.

Sales tax experienced a decrease of $1.3 million, or 4.8%, over the prior year. primarily due to building and construction decreases as expected from the completion of the Apple Campus in the first part of 2018 as well as a “cleanup” payment received in fiscal year 2017-18 that was not received in FY 2018-

19. Statewide, July 2019 marked ten years of continuous statewide economic growth which is the longest period of U.S. economic expansion on record. However, analysts from a variety of economic segments are reporting signs that we may be leveling off.

Transient occupancy tax has increased $2 million, or 30.7%, over the prior year resulting of the Residence Inn by Marriott, which opened at Main Street in early 2018, and has continued to experience growth in occupancy rates. The City’s voluntary collection agreement with Airbnb which began in August of 2018, continues to show growth. Staff estimate approximately $450,000 attributable to short- term rental TOT revenues in fiscal year 2019-20. Lastly, the opening of the Hyatt House Hotel in April 2019 has contributed to growth in this revenue category.

Investment earnings saw an increase of $2.3 million, or 256%, over the prior year. This was due to the City’s portfolio’s market yield increasing from 1.3% as of June 30, 2018 to 2.2% as of June 30, 2019.

Additionally, during fiscal year 2018-19, the City retained a third-party investment advisor to assist with achieving higher maturity, duration, and market yield while maintaining the overall goal of safety, liquidity, and returns.

Program revenues showed a decrease of $5.9 million, or 21%, and is primarily attributable to the completion and winding down of significant construction and development projects resulting in a decrease in fee revenues. Finally, charges for services experienced a significant gross decrease in cost allocation plan charges across all funds and resulted in a decrease in revenues.

Operating grants and contributions decreased $2.3 million, or 47%, due to the City receiving a $1.8 million contribution from Apple for the City’s 2016 Bicycle Implementation Plan in fiscal year 2017-18 that it did not received in fiscal year 2018-19.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

12 City-wide Governmental Activities Expenses

City-wide governmental activities expenses decreased by $3.7 million, or 5%. The City’s cost allocation plan created fluctuations from one department to the next and special project and capital outlay spending fluctuated as well; however, base expenses remained relatively consistent over the prior year.

Change in Net Position

The City-wide governmental net position increase of $17.5 million was slightly up compared to the increase of $14.0 million in 2017-18 and can be best explained by continued relative stabilization in general revenues paired with consistent and conservative spending.

Business Type Activities

Business-type activities in the City-wide Financial Statements include the City’s four enterprise funds.

Enterprise funds are used to account for recreational and solid waste management operations that are financed and operated in a manner similar to private business enterprises where the intent is that costs of providing services and facilities to the general public on a continuing basis be financed or recovered primarily through user fees. The major proprietary funds section of this report provides more information on business-type results.

As shown in Table 3 and Table 4, the business-type net position totaled $8.1 million at June 30, 2019, a decrease of $1.6 million, or 16.5%, from the prior year with unrestricted net position decreasing $1.3 million and the net investment in capital assets decreasing by $279,000. Business-type activities transferred in (net) $75,000, an increase of $182,000 over the prior year, which helped minimize the decrease in net position. Few capital asset additions offset with $291,000 in depreciation expense resulted in a net decrease of $279,000 over the prior year. Enterprise activities experienced an overall slight decrease in assets due to the addition of an actuarially-determined Net OPEB Asset of $71,000 in fiscal year 2018-2019 which offset decreases in the cash and cash equivalent classification. Liabilities for business-type activities remained relatively consistent with prior year.

In Table 4, revenues for all business-type activities decreased $1.2 million and operating expenses decreased by $777,000, primarily attributable to the restructuring of the City’s waste recovery contract which eliminated pass-through costs.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

13 2019
2018
Assets:

Cash and investments
10,396
$

11,271
$

Other assets
407

526

Capital assets
1,319

1,598

Total assets
12,122

13,395

Deferred Outflows of Resources:

Related to pension
539

665

Other Liabilities:
4,447

4,310

Total liabilities
4,447

4,310

Deferred Inflows of Resources:

Related to pension
Related to OPEB
Total deferred inflows of resources
43 114
157

20 81
101

Net Position:

Net investment in capital assets
1,319

1,598

Unrestricted
6,738

8,051

Total net position
8,057
$

9,649
$

Table 3
Condensed Statement of Net Position at June 30
(in thousands)
Business Type Activities

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

14 Table 4
Condensed Statement of Activities for the Year Ended June 30 (in thousands)

Business Type Activities
Expenses 2019 2018
Resource recovery $ 1,736 $ 2,595 Blackberry farm 645 656 Sports center 3,036 2,634
Recreation programs 2,923 3,232 Total expenses 8,340 9,117

Revenues
Program revenues:

Charges for services 6,403 7,826 General revenues:

Investment earnings 270 76 Total revenues 6,673 7,902

Excess of revenues over expenses,
before transfers (1,667) (1,215)

Transfers 75 (107)

Change in net position (1,592) (1,322)

Beginning net position 9,649 10,971 Ending net position $ 8,057 $ 9,649

MAJOR GOVERNMENTAL FUNDS

General Fund

General Fund Revenues

General Fund actual revenues of $88.8 million ended $11.9 million, or 15.5%, above the original budget and $4.4 million, or 5.2%, above the final budget. Actual revenues were up $3.7 million or 4% when compared to 2017-18 actuals. Table 5 displays the variations in actual revenues, while Table 6 shows budgeted revenues compared to actuals.

Property taxes increased $2.9 million, or 13%, over the prior year due to continued roll-growth.

According to the 2019-2020 Assessor’s Annual Report for Santa Clara County, Cupertino’s net assessment roll growth increased nearly $831 million, or 3.3%, from the prior year.

Sales tax decreased $1.3 million, or 5%, over the prior year due to the tapering of localized sales tax dollars from construction and completion of Apple Campus 2 which further indicates a return to normalcy in respect to previous years. Additionally, the City received a one-time quarterly clean-up payment in FY 2017-18 of $1.6 million that contributed to the comparative decrease in FY 2018-19.

The City’s two largest sales tax payers in the business-to-business category represent a large part of that sector and therefore can significantly affect sales tax trends. The top tax payer’s corporate and business technology spending has driven growth in this sector. Overall, sales tax activity has increased across most sectors with a decrease primarily in construction attributable to the winding down of construction projects in the City, particularly, the Apple Campus 2 project.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

15 Transient occupancy tax increased $2.1, or 30.7%, due to the opening of the Residence Inn by Marriott and Hyatt House hotels. Additionally, the City’s voluntary collection agreement with Airbnb began to bring in additional TOT dollars that contributed to the increase.

Charges for services showed a decline of $2.3 million, or 16%, over the prior year and due to a gross reduction in cost allocation plan charges as well as decreased fee revenue from the winding down and completion of Apple Campus 2.

Licenses and permits increased $1.3 million, or 49%, due to increased plan check and building permits.

Overall continued growth in the local economy as well as the annual increase in business license tax rates also contributed to the increase.

Table 5
Revenue Changes
General Fund, Fiscal 2019 vs. 2018
(in thousands)
Increase/(Decrease)
Fiscal 2019 From Fiscal 2018
Revenue by Source Amount % of Total Amount Percent
Taxes:

Property $ 25,301 28% $ 2,867 13% Sales 24,902 28% (1,263) -5% Transient occupancy 8,901 10% 2,090 31% Utility user 3,090 3% (56) -2% Franchise 3,445 4% (119) -3% Other 1,660 2% 320 24% Use of money & property 2,654 3% 1,328 100% Intergovernmental 474 1% (527) -53% Licenses and permits 4,103 5% 1,345 49% Charges for services 12,645 14% (2,327) -16% Fines and forfeitures 511 1% (64) -11% Other 1,102 1% 87 -9% Total revenues $ 88,788 100% $ 3,681 4% Other financing sources:

Proceeds from sale of capital assets $ 4 71% $ (868) -100% Transfers in 10 29% (2,244) -100% Total other financing sources $ 14 100% $ (3,112) -100%

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

16 Table 6
Revenue, Budget and Actual Comparisons
General Fund 2018-19
(in thousands)
Budgeted Amounts
Variance with
Final
Original Final

Actual
Positive/
(Negative)
Taxes:

Property $ 22,766 $ 23,766 $ 25,301 $ 1,535 Sales 23,637 24,537 24,902 365 Transient occupancy 8,252 8,252 8,901 649 Utility user 3,200 3,200 3,090 (110) Franchise 3,042 3,042 3,445 403 Other 1,150 1,150 1,660 510 Use of money & property 692 692 2,654 1,962 Intergovernmental 326 326 474 148 Licenses and permits 2,685 2,685 4,103 1,418 Charges for services 10,269 14,773 12,645 (2,128) Fines and forfeitures 615 615 511 (104) Other 244 1,356 1,102 (254)

Total revenues $ 76,878 $ 84,394 $ 88,788 $ 4,394 Transfers in $ 10 $ 10 $ 10 $ -

Proceeds from sale of
capital assets
-
-
4 4

Total other financing
sources

$ 10
$ 10
$ 14
$ 4,398

General Fund Expenditures

Fiscal 2018-19 overall expenditures, at $63.0 million, were $2.2 million lower than last year. This result came in 13% or $9.6 million under the final budget. Year-over-year and budget-versus-actual results for General Fund programs are described below and in Tables 7 and 8.

Administration increased $1.4 million, or 28%, from 2017-18 and is primarily due to a reorganization of the following Divisions: Community Outreach and Neighborhood Watch, Disaster Preparedness, and Economic Development. These Divisions were previously budgeted in The Parks & Recreation and Community Development Departments.

Law Enforcement was higher by approximately $746,000, or 6%, which was the automatic increase in the existing contract with the Santa Clara County Sheriff’s Office triggered by increases in the lease and CalPERS costs.

Innovation & Technology remained relatively consistent from 2017-18 to 2018-19. Some notable special projects that commenced included, but were not limited to, the City’s conference room upgrade, live graphics system upgrade, hyperconverged storage expansion, and printer and wireless upgrades.

Administrative Services’ expenditures decreased approximately $232,000, or 5%, over the prior year.

Despite adding two full-time employees in the Department, the overall decrease was primarily

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

17 attributable to a reduction in contract service charges for the City’s sales, property, and transient occupancy tax collection, audit, and reporting services compared to the previous fiscal year.

Recreation and Community Services General Fund expenditures experienced a 4% increase, or $309,000, across its programs. While the department’s program expenditures remained relatively consistent with the prior year, the majority of the increase is attributable to negotiated increases in compensation and benefits.

Community Development expenditures in the General Fund increased $189,000 or 2% due to salary and benefit that were offset with decrease in special project spending; namely, the Vallco Specific Plan.

Public Works expenditures increased approximately $1.8 million or 12%. This is primarily represented by an increase in compensation and benefits. While various divisions and programs fluctuated over the prior year, the notable special projects and fluctuations include, but are not limited to, the building and water system assessment and the Apple Campus 2 Traffic Mitigation Improvements.

Transfers out of the General Fund decreased from $24.1 million in 2017-18 to $19.4 million, with $5.8 million for capital projects in the Transportation Fund, $3.2 million for annual debt service, $8.0 million for capital projects in the Capital Improvement Projects Fund, $811,000 to subsidize a state-mandated enforcement program, and $1.6 million to internal service funds.

Table 7
Expenditure Changes
General Fund, Fiscal 2019 vs. 2018
(in thousands)
Increase/(Decrease)
Fiscal 2019 From Fiscal 2018
Function/Program Amount % of Total Amount Percent
Administration $ 6,293 10% $ 1,374 28% Law enforcement 13,109 21% 746 6% Innovation & technology 2,844 5% 8 0% Administrative services 4,198 7% (232) -5% Recreation and community services 8,995 14% 309 4% Community development 8,554 14% 189 2% Public works 17,667 28% 1,846 12% Capital outlay 1,354 2% (6,409) -83% Total expenditures $ 63,014 100% $ (2,169) -3% Transfers out $ 19,376 100% $ (4,753) -20%

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

18 Table 8
Expenditure Changes
General Fund 2018-19
(in thousands)
Budgeted Amounts
Variance with
Final
Original Final Actual Positive/ (Negative)
Administration $ 6,884 $ 7,339 $ 6,293 $ 1,046 Law enforcement 12,988 13,127 13,109 18 Innovation & technology 3,397 3,318 2,844 474 Administrative services 4,607 4,629 4,198 431 Recreation and community
services 10,614 10,306 8,995 1,311 Community development 8,333 12,533 8,554 3,979 Public works 17,831 19,429 17,667 1,762 Capital outlay 1,626 1,897 1,354 543

Total expenditures $ 66,280 $ 72,578 $ 63,014 $ 9,564 Transfers out $ 11,359 $ 19,376 $ 19,376 $ -

General Fund - Fund Balance

The General Fund carried a June 30, 2019, ending fund balance of $58,922,585, up 12.2% or $6.4 million from beginning of the fiscal year. Loan receivables totaled $454,188 of non-spendable fund balance.

The City committed $19.0 million for general economic uncertainty and $123,397 for sustainability.

The City assigned $1,979,202 for encumbrances. $1,346,167 was restricted for public access television purposes, $13,982 for CASp certification training and $8,109,521 for the pension rate stabilization program (Section 115 Trust). $27,896,128 was classified as unassigned.

Transportation

The Transportation Special Revenue Fund carried a June 30, 2019, ending fund balance of $10,013,926, up 13.7%, or $1.2 million from the beginning of the fiscal year. Activities in this fund remained relatively consistent from the prior fiscal year 2017-18 with the majority of expenditures incurred on the annual asphalt project.

Housing Development

The Housing Development Special Revenue Fund carried a June 30, 2019, ending fund balance of $8.6 million, up 1%, or $116,000 from the beginning of the fiscal year. The activities in this fund were down significantly in comparison with 2017-18 due to Below Market Rate (BMR) Charities Housing Program expenditures in FY 2017-18.

Public Facilities Corporation

A transfer of $3,169,438 was made from the General Fund to the Public Facilities Corporation Debt Service Fund to cover principal and interest on the 2012 Certificates of Participation lease payments.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

19 See Notes 4 and 6 to the Basic Financial Statements and the Debt Administration section of this analysis for more information.

Capital Improvement Projects

The Capital Improvement Projects Capital Projects Fund carried a June 30, 2019, ending fund balance of $33,009,760, up 14.2%, or $4.1 million from the beginning of the fiscal year. During fiscal year 2018-2019, an $8 million transfer in from the General Fund was received for purposes of fund capital- related projects. The following capital projects incurred the highest expenditures: Sports Center Exterior Upgrades, McClellan West Parking Lot Improvements, and 2016 Bike Plan Implementation.

MAJOR PROPRIETARY FUNDS

Resource Recovery

The City has a solid waste franchise agreement with Recology that shares collection, landfill disposal, and recycling revenues and costs. This fund receives revenues from Recology with the funds going toward landfill costs, regulatory fees, and staffing costs that the City incurs to manage its solid waste, recycling, and household hazardous waste programs. This agreement was amended during the fiscal year that significantly reduced the impact for landfill disposal and as a result, the fund experienced decreases in both revenues and expenses. Total operating revenue decreased from $2.56 million last year to $1.8 million this year, while expenses decreased by approximately $859,000. Net position increased by approximately $171,000. The fund ended the year with a $5,485,694 net position.

Recreation Programs

This enterprise operates the Quinlan Community Center, Monta Vista Recreation Center, McClellan Ranch, Creekside Park building, eight school sites, and various parks. While the economy and enhanced marketing helped cultural events, youth and teen programs, sports, dance and fitness classes in generate increasing revenues in recent years, fiscal year 2018-19 saw a slight decline. These programs generated approximately $2.0 million in revenues that were 21% lower than last year. Ongoing program expenses of approximately $2.9 million included full-time administrative and programming staff, part-time activity leaders, and class instructors on contract. This resulted in a net operating loss of $869,000 as compared to an operating loss of $700,000 a year ago. After the transfer, the fund ended up with a decrease in net position of $868,937. The fund ended the year with a net position of $1,838,753.

Cupertino Sports Center

Tennis lesson, membership, fitness class and rent revenues of $2,349,000 decreased by $54,000 or 2.3% over last year, remaining relatively stagnant over the previous year. In addition, expenses increased by $402,000 or 15%, resulting in a net operating loss of $687,000. In 2017-18, net operating income was ($230,000). This current year’s operating loss was primarily attributable to increases in contract services. This fund’s net position was $748,346 as of June 30, 2019.

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

20 NONMAJOR PROPRIETARY FUNDS

Blackberry Farm

City employees, with a teaching professional contractor, staff the City-owned Blackberry Farm golf course and pro shop. Operating revenues decreased 8% in 2018-2019 from $346,000 to $317,000.

Operating expenses decreased by $11,000, or 1.6%, to $645,000 this year due to a gross decrease in cost allocation plan charges. Other expense classification remained relatively consistent. Altogether, the golf course’s operating loss increased from $310,000 last year to $321,000 this year. After a transfer in from the Capital Projects Fund of $75,000, net position decreased $246,000. As of June 30, 2019, this fund’s net position was ($16,291).

CAPITAL ASSETS

At June 30, 2019, the City had $197.3 million, net of depreciation, invested in a broad range of capital assets used in governmental and business-type activities, as shown in Table 9 and in Note 5 to the Basic Financial Statements. This reflects the City’s continued investment into capital projects dedicated to street and transportation improvements, storm drain improvements, and maintenance of and improvements to City facilities, resulting in an increase in net capital assets of $0.9 million, after depreciation.

Table 9
Capital Assets, Net of Depreciation, at June 30
(in thousands)

2019 2018
Governmental Activities:

Land $ 62,046 $ 62,046
Easements 19,615 19,492 Construction in Progress 3,566 7,154 Buildings 17,723 19,049 Improvements other than buildings 18,912 20,862 Machinery and equipment 4,912 4,484 Roads, curbs, gutters, sidewalks, medians and bridges 62,171 54,696 Streetlights 1,488 1,409 Storm drain structures and mains 4,695 4,685 Traffic signals 842 955

Total Governmental Activities 195,971 194,832

Business-Type Activities
Buildings 634 695
Improvements other than buildings 628 838 Machinery and equipment 56 65

Total Business-Type Activities 1,319 1,598

Total City $ 197,290 $ 196,430

CITY OF CUPERTINO
Management’s Discussion and Analysis (Unaudited)
For the Year Ended June 30, 2019

21 DEBT ADMINISTRATION

The City’s only long-term debt liability at June 30, 2019, comes from $43,940,000 in Certificates of Participation (COPs) issued in May 2012 by the Cupertino Public Facilities Corporation. The certificates refunded previously issued COPs that financed Wilson Park, Blackberry Farm, and Creekside Park purchases, the Memorial Park expansion, the Quinlan Community Center construction, the City Hall remodel, and the new library opened in 2004. The serial fixed rate debt ranging from 0.35% to 3.125% requires annual debt payments of approximately $3,170,379 that are covered by the General Fund. The June 30, 2019, outstanding principal of $29,300,000 is due to be paid off by July 1, 2030. More information can be found in Note 6 to the Basic Financial Statements and in the Public Facilities Corporation discussion earlier in this analysis.

CURRENTLY KNOWN FACTS AND CONDITIONS

The City is unaware of any facts or conditions or decisions that are expected to have a significant effect on net position or results of operations.

CONTACTING THE CITY’S FINANCIAL MANAGEMENT

This Comprehensive Annual Financial Report is intended to provide a general overview of the City’s finances. Further information can be provided by the City of Cupertino Finance Department, 10300 Torre Avenue, Cupertino CA 95014, phone (408) 777-3280, or by the City website at www.cupertino.org.

STATEMENT OF NET POSITION AND STATEMENT OF ACTIVITIES

22. The Statement of Net Position and the Statement of Activities summarize the entire City's financial activities and financial position. They are prepared on the same basis as is used by most businesses, which means they include all the City's assets and all its liabilities, as well as all its revenues and expenses. This is known as the full accrual basis - the effect of all the City' s transactions is taken into account, regardless of whether or when cash changes hands, but all material internal transactions between City funds have been eliminated.

The Statement of Net Position reports the difference between the City's total assets and deferred outflows and the City's total liabilities and deferred inflows, including all the City's capital assets and all its long term debt.

The Statement of Net Position summarizes the financial position of all the City's Governmental Activities in a single column, and the financial position of all the City's Business-Type Activities in a single column; these columns are followed by a Total column which presents the financial position of the entire City.

The City's Governmental Activities include the activities of its General Fund, along with all its Special Revenue, Capital Projects and Debt Service Funds. Since the City's Internal Service Funds service these Funds, their activities are consolidated with Governmental Activities, after eliminating inter-fund transactions and balances. The City's Business Type Activities include all of its Enterprise Fund activities.

The Statement of Activities reports increases and decreases in the City's net position. It is also prepared on the full accrual basis, which means it includes all the City's revenues and all its expenses, regardless of when cash changes hands. This differs from the "modified accrual" basis used in the Fund financial statements, which reflect only current assets, current liabilities, available revenues and measurable expenditures.

The format of the Statement of Activities presents the City's expenses first, listed by program, and follows these with the expenses of its business-type activities. Program revenues, that are revenues which are generated directly by these programs, are then deducted from program expenses to arrive at the net expense of each governmental and business-type program. The City's general revenues are then listed in the Governmental Activities or Business-type Activities column, as appropriate, and the Change in Net Position is computed and reconciled with the Statement of Net Position.

Both these Statements include the financial activities of the City and the Cupertino Public Facilities Corporation, which is a legally separate component unit of the City because it is controlled by and financially accountable to the City.

CITY OF CUPERTINO, CALIFORNIA

STATEMENT OF NET POSITION
June 30, 2019

See accompanying notes to financial statements.

23. Governmental Business-Type
Activities Activities Total
ASSETS
Cash and cash investments (Note 2) 132,532,102$ 10,395,914$ 142,928,016$ Restricted cash and investments (Note 2) 12,412,368 - 12,412,368 Receivables
Accounts 3,697,044 335,730 4,032,774 Interest 363,945 - 363,945 Loans (Note 3) 4,712,072 - 4,712,072 Prepaid expenses and other assets 3,884 - 3,884 Net OPEB asset (Note 11) 1,073,910 71,090 1,145,000 Capital assets (Note 5):

Non-depreciable 85,227,064 - 85,227,064 Depreciable, net of
accumulated depreciation 110,743,986 1,318,744 112,062,730 Total assets 350,766,375 12,121,478 362,887,853

DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10) 8,088,063 538,609 8,626,672 Total deferred outflows of resources 8,088,063 538,609 8,626,672

LIABILITIES
Accounts payable and accruals 6,806,798 368,773 7,175,571 Accrued payroll and benefits 882,486 289 882,775 Deposits 7,066,073 - 7,066,073 Unearned revenue 273,418 1,162,557 1,435,975 Compensated absences (Note 1):

Due in one year 516,355 55,667 572,022 Due in more than one year 4,234,115 309,664 4,543,779 Claims payable (Note 9):

Due in one year 313,291 - 313,291 Due in more than one year 1,239,986 - 1,239,986 Long-term debt (Note 6):

Due in one year 2,290,000 - 2,290,000 Due in more than one year 27,010,000 - 27,010,000 Net pension liability (Note 10) 38,329,854
2,549,735 40,879,589
Total liabilities 88,962,376 4,446,685 93,409,061

DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10) 637,560 42,980 680,540 Related to OPEB (Note 11) 1,685,080 113,920 1,799,000 Total deferred inflows of resources 2,322,640 156,900 2,479,540 NET POSITION (Note 7)
Net investment in capital assets 170,973,897 1,318,744 172,292,641 Restricted for:

Special revenue projects 35,109,484 - 35,109,484 Affordable housing 8,635,265 - 8,635,265 Debt service 1,660,759 - 1,660,759 Total restricted net position 45,405,508 - 45,405,508 Unrestricted 51,190,017 6,737,758 57,927,775 Total net position 267,569,422$ 8,056,502$ 275,625,924$

CITY OF CUPERTINO, CALIFORNIA

STATEMENT OF ACTIVITIES
For the year ended June 30, 2019

See accompanying notes to financial statements.

24. Operating Capital Business-
Charges for Grants and Grants and Governmental Type
Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental activities:

Administration 6,849,046$ 1,319,395$ 1,300$ -$ (5,528,351)$ -$ (5,528,351)$ Law enforcement 13,381,113 889,923 148,747 - (12,342,443) - (12,342,443) Public and environmental affairs 3,210,343 - - - (3,210,343) - (3,210,343) Administrative services 4,290,818 3,113,731 - - (1,177,087) - (1,177,087) Recreation services 7,389,915 1,563,262 - - (5,826,653) - (5,826,653) Community development 10,470,973 7,470,690 405,309 - (2,594,974) - (2,594,974) Public works 31,870,165 4,504,104 2,002,114 1,082,243 (24,281,704) - (24,281,704) Interest on long - term debt 949,438 - - - (949,438) - (949,438) Total governmental activities 78,411,811 18,861,105 2,557,470 1,082,243 (55,910,993) - (55,910,993) Business-type activities:

Resource recovery 1,735,885 1,750,279 - - - 14,394 14,394 Blackberry farm 645,469 316,615 - - - (328,854) (328,854) Cupertino sports center 3,036,037 2,349,468 - - - (686,569) (686,569) Recreation programs 2,923,336 1,986,781 - - - (936,555) (936,555) Total business-type activities 8,340,727 6,403,143 - - - (1,937,584) (1,937,584) Total 86,752,538$ 25,264,248$ 2,557,470$ 1,082,243$ (55,910,993) (1,937,584) (57,848,577) General revenues:

Taxes:

Property taxes 17,082,005 - 17,082,005 Property tax in lieu of motor vehicle fee 8,219,090 - 8,219,090 Sales taxes 24,901,779 - 24,901,779 Transient occupancy tax 8,901,337 - 8,901,337 Utility user tax 3,089,922 - 3,089,922 Franchise tax 3,445,253 - 3,445,253 Other taxes 3,299,587 - 3,299,587 Intergovernmental, unrestricted:

Motor vehicle license fee 28,844 - 28,844 Investment earnings 3,258,550 270,371 3,528,921 Gain on sale of capital assets 3,875 - 3,875 Miscellaneous 1,187,741 - 1,187,741 Transfers (Note 4) (75,000) 75,000 - Total general revenues and transfers 73,342,983 345,371 73,688,354 Change in Net Position 17,431,990 (1,592,213) 15,839,777 Net Position, beginning of year 250,137,432 9,648,715 259,786,147 Net Position, end of year 267,569,422$ 8,056,502$ 275,625,924$ Program Revenues Changes in Net Position
Net (Expense) Revenue and

FUND FINANCIAL STATEMENTS

25. In the Fund Financial Statements only individual major funds are presented, while non-major funds are combined in a single column. Major funds are defined generally as having significant activities or balances in the current year.

The funds described below were determined to be Major Funds by the City for fiscal 2018-19. Individual non-major funds may be found in the Supplementary section.

General Fund: The general fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund.

Transportation Special Revenue Fund: Accounts for the City's gas tax, vehicle registration fees and grant revenues and expenditures related to the maintenance and construction of City streets. All revenue in this fund is restricted exclusively for street and road purposes including related engineering and administrative expenditures.

Housing Development Special Revenue Fund: Accounts for the Federal Housing and Community Development Grant Program activities administered through the County. Monies collected from developers that mitigate the impact of housing needs are also included. Monies in this fund are governed by the program's rules.

Public Facilities Corporation Debt Service Fund: This fund accounts for the payments of principal and interest on certificates of participation issued to provide for the financing of the Civic Center, Library, Wilson Park, Memorial Park, and other City facilities.

Capital Improvement Projects Capital Projects Fund: This fund accounts for activities related to the acquisition or construction of major capital facilities.

CITY OF CUPERTINO, CALIFORNIA

GOVERNMENTAL FUNDS

BALANCE SHEET
June 30, 2019

See accompanying notes to financial statements.

26. Public Capital
Facilities Improvement
Corporation Projects Nonmajor Total
Housing Debt Capital Governmental Governmental
General Transportation Development Service Fund Projects Fund Funds Funds ASSETS
Cash and investments (Note 2) 57,426,973$ 9,878,365$ 8,206,022$ 83,413$ 33,547,354$ 15,833,506$ 124,975,633$ Restricted cash and investments (Note 2) 8,109,521 - - 4,302,847 - - 12,412,368 Receivables:

Accounts 3,320,100 232,496 78,663 - 63,992 1,793 3,697,044 Interest 363,945 - - - - - 363,945 Loans (Note 3) 454,188 - 4,257,884 - - - 4,712,072 Due from other funds (Note 4) 441,326 - - - - - 441,326 Other assets 3,884 - - - - - 3,884 Total assets 70,119,937$ 10,110,861$ 12,542,569$ 4,386,260$ 33,611,346$ 15,835,299$ 146,606,272$

LIABILITIES
Accounts payable and accruals 2,975,447$ 96,935$ 195,184$ 2,694,719$ 601,586$ 7,225$ 6,571,096$ Accrued payroll and benefits 882,414 - - - - - 882,414 Due to other funds (Note 4) - - - 30,782 - - 30,782 Deposits 7,066,073 - - - - - 7,066,073 Unearned revenue 273,418 - - - - - 273,418 Total liabilities 11,197,352 96,935 195,184 2,725,501 601,586 7,225 14,823,783

DEFERRED INFLOWS OF RESOURCES
Unavailable revenue - loans - - 3,712,120 - - - 3,712,120 Total deferred inflows of resources - - 3,712,120 - - - 3,712,120 FUND BALANCES (Note 7)
Nonspendable 454,188 - - - - - 454,188 Restricted 9,469,670 10,013,926 8,635,265 1,660,759 - 15,625,888 45,405,508 Committed 19,123,397 - - - - - 19,123,397 Assigned 1,979,202 - - - 33,009,760 202,186 35,191,148 Unassigned 27,896,128 - - - - - 27,896,128 Total fund balances 58,922,585 10,013,926 8,635,265 1,660,759 33,009,760 15,828,074 128,070,369 Total liabilities, deferred inflows
of resources and fund balances 70,119,937$ 10,110,861$ 12,542,569$ 4,386,260$ 33,611,346$ 15,835,299$ 146,606,272$ Special Revenue Funds

CITY OF CUPERTINO, CALIFORNIA

RECONCILIATION OF GOVERNMENTAL FUNDS

BALANCE SHEET TO STATEMENT OF NET POSITION
June 30, 2019

See accompanying notes to financial statements.

27. Total fund balances reported on the governmental funds balance sheet 128,070,369$ 192,287,856
6,850,177
3,712,120
Long-term debt (29,300,000)
Net pension liability (35,909,154)
Net OPEB asset 994,937
Pension-related deferred outflows of resources 7,582,259 Pension-related deferred inflows of resources (594,998) OPEB-related deferred inflows of resources (1,578,555)
Compensated absences (4,545,589)
Net position for governmental activities 267,569,422$
The liabilities, deferred inflows of resources and deferred outflows of resources are not related to the current period and therefore are not reported in the governmental funds:

Capital assets used in governmental activities are not current assets or financial resources and therefore are not reported in the governmental funds.

Internal service funds are used by management to charge the costs of activities such as information technology, insurance, equipment acquisition and maintenance, and certain employee benefits to governmental funds. The assets and liabilities of the internal service funds are therefore included in the governmental activities of the statement of net position.

Certain receivables are not available to pay for current period expenditures and therefore are deferred in the governmental funds.

Amounts reported for governmental activities in the statement of net position are different from those reported in the governmental funds because of the following:

CITY OF CUPERTINO, CALIFORNIA

GOVERNMENTAL FUNDS

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES For the year ended June 30, 2019

See accompanying notes to financial statements.

28. Public Capital
Facilities Improvement
Corporation Projects Nonmajor Total
Housing Debt Capital Governmental Governmental
General Transportation Development Service Fund Projects Fund Funds Funds Revenues
Taxes 67,299,302$ -$ 159,179$ -$ -$ 1,480,492$ 68,938,973$ Use of money and property 2,654,331 271,320 212,727 75,272 300,642 382,521 3,896,813 Intergovernmental 473,942 2,800,292 344,323 - 50,000 - 3,668,557 Licenses and permits 4,102,665 - - - - - 4,102,665 Charges for services 12,644,413 17,193 29,145 - 119,637 575,310 13,385,698 Fines and forfeitures 511,471 - - - - 22,541 534,012 Other revenue 1,102,320 84,520 901 - - - 1,187,741 Total revenues 88,788,444 3,173,325 746,275 75,272 470,279 2,460,864 95,714,459 Expenditures
Current:

Administration 6,292,611 - - 1,500 - - 6,294,111 Law enforcement 13,108,732 - - - - - 13,108,732 Public and environmental affairs 2,843,540 - - - - - 2,843,540 Administrative services 4,197,582 - - - - - 4,197,582 Recreation services 8,996,118 - - - - - 8,996,118 Community development 8,554,055 - 805,780 - - - 9,359,835 Public works 17,667,775 1,628,957 - - - 658,847 19,955,579 Capital outlay 1,353,691 6,134,167 - - 2,955,717 84,671 10,528,246 Debt service:

Principal - - - 2,220,000 - - 2,220,000 Interest and fiscal charges - - - 949,438 - - 949,438 Total expenditures 63,014,104 7,763,124 805,780 3,170,938 2,955,717 743,518 78,453,181 Excess (deficiency) of revenues
over expenditures 25,774,340 (4,589,799) (59,505) (3,095,666) (2,485,438) 1,717,346 17,261,278 Other financing sources (uses)
Proceeds from sale of capital assets 3,875 - - - - - 3,875 Transfers in (Note 4) 10,000 5,800,000 175,000 3,169,438 8,142,175 2,111,000 19,407,613 Transfers (out) (Note 4) (19,376,087) - - - (1,550,000) (135,000) (21,061,087) Total other financing sources (uses) (19,362,212) 5,800,000 175,000 3,169,438 6,592,175 1,976,000 (1,649,599) Net change in fund balances 6,412,128 1,210,201 115,495 73,772 4,106,737 3,693,346 15,611,679 Beginning fund balances 52,510,457 8,803,725 8,519,770 1,586,987 28,903,023 12,134,728 112,458,690 Ending fund balances 58,922,585$ 10,013,926$ 8,635,265$ 1,660,759$ 33,009,760$ 15,828,074$ 128,070,369$ Special Revenue Funds

CITY OF CUPERTINO, CALIFORNIA

GOVERNMENTAL FUNDS
RECONCILIATION OF NET CHANGES IN FUND BALANCES –

GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
For the year ended June 30, 2019

See accompanying notes to financial statements.

29. Total net changes in fund balances reported on the
governmental funds balance sheet 15,611,679$
Amounts reported for governmental activities in the statement of activities are different from those reported in the governmental funds because of the following:

Capital outlay 8,864,425
Depreciation expense (7,356,610)
Net retirements (512,335)
2,220,000
Compensated absences (710,535)
Net pension liability 232,344
Net OPEB asset 1,360,059
Pension-related deferred outflows of resources (1,793,234) Pension-related deferred inflows of resources (333,889) OPEB-related deferred inflows of resources (462,073)
312,159
Change in net position of governmental activities 17,431,990$ Internal service funds are used by management to charge the costs of activities such as information technology, insurance, equipment acquisition and maintenance, and certain employee benefits to governmental funds. The portion of the net expense of these internal service funds arising out of their transactions with governmental funds is reported with governmental activities because they service those activities.

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets are capitalized and depreciated over their estimated useful lives, which is reported as depreciation expense. Expenditures for capital assets reported as:

Long term debt principal payments are reported as expenditures in the governmental funds but are not reported as expenses in the statement of activities.

The changes in the amounts below do not provide or require the use of current financial resources and therefore are not reported as revenues or expenditures in the governmental funds:

The schedule below reconciles the net changes in fund balances reported on the governmental funds statement of revenues, expenditures and changes in fund balances, which measures only changes in current assets and current liabilities on the modified accrual basis, with the change in net position of governmental activities reported in the statement of activities, which is prepared on the full accrual basis.

CITY OF CUPERTINO, CALIFORNIA

GENERAL FUND

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2019

See accompanying notes to financial statements.

30. Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Taxes 62,047,000$ 63,947,000$ 67,299,302$ 3,352,302$ Use of money and property 692,000 692,000 2,654,331 1,962,331 Intergovernmental 326,000 326,000 473,942 147,942 Licenses and permits 2,685,000 2,685,000 4,102,665 1,417,665 Charges for services 10,269,276 14,772,820 12,644,413 (2,128,407) Fines and forfeitures 615,000 615,000 511,471 (103,529) Other revenue 244,200 1,356,457 1,102,320 (254,137) Amounts available for
appropriation 76,878,476 84,394,277 88,788,444 4,394,167 Charges for appropriation (outflows):

Current
Administration 6,883,713 7,339,279 6,292,611 1,046,668 Law enforcement 12,988,353 13,127,260 13,108,732 18,528 Public and environmental affairs 3,397,490 3,317,395 2,843,540 473,855 Administrative services 4,606,561 4,628,502 4,197,582 430,920 Recreation services 10,614,583 10,305,934 8,996,118 1,309,816 Community development 8,332,883 12,533,470 8,554,055 3,979,415 Public works 17,831,725 19,429,459 17,667,775 1,761,684 Capital outlay 1,625,500 1,897,260 1,353,691 543,569 Total charges for appropriations 66,280,808 72,578,559 63,014,104 9,564,455 Excess of revenues
over expenditures 10,597,668 11,815,718 25,774,340 13,958,622 Other financing sources (uses)
Proceeds from sale of capital assets - - 3,875 3,875 Transfers in 10,000 10,000 10,000 - Transfers (out) (11,358,912) (19,376,088) (19,376,087) 1 Total other financing
sources (uses) (11,348,912) (19,366,088) (19,362,212) 3,876 Net change in fund balance (751,244)$ (7,550,370)$ 6,412,128 13,962,498$ Beginning fund balance 52,510,457
Ending fund balance 58,922,585$
Budgeted Amounts

CITY OF CUPERTINO, CALIFORNIA

TRANSPORTATION SPECIAL REVENUE FUND

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2019

See accompanying notes to financial statements.

31. Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Use of money and property 77,500$ 77,500$ 271,320$ 193,820$ Intergovernmental 3,510,939 3,510,939 2,800,292 (710,647) Charges for services - - 17,193 17,193 Other revenue 185,000 185,000 84,520 (100,480) Amounts available for
appropriation 3,773,439 3,773,439 3,173,325 (600,114) Charges for appropriation (outflows):

Current
Public works 2,711,960 1,794,673 1,628,957 165,716 Capital outlay 5,978,379 6,117,818 6,134,167 (16,349) Total charges for appropriations 8,690,339 7,912,491 7,763,124 149,367 Deficiency of revenues
under expenditures (4,916,900) (4,139,052) (4,589,799) (450,747) Other financing sources (uses)
Transfers in 5,800,000 5,800,000 5,800,000 -
Total other financing
sources (uses) 5,800,000 5,800,000 5,800,000 - Net change in fund balance 883,100$ 1,660,948$ 1,210,201 (450,747)$ Beginning fund balance 8,803,725
Ending fund balance 10,013,926$
Budgeted Amounts

CITY OF CUPERTINO, CALIFORNIA

HOUSING DEVELOPMENT SPECIAL REVENUE FUND

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN
FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2019

See accompanying notes to financial statements.

32. Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
Revenues
Taxes 3,000$ 3,000$ 159,179$ 156,179$ Use of money and property 10,910 10,910 212,727 201,817 Intergovernmental 311,942 311,942 344,323 32,381 Charges for services - - 29,145 29,145 Other revenue - - 901 901 Amounts available for
appropriation 325,852 325,852 746,275 420,423 Charges for appropriation (outflows):

Current
Community development 1,143,173 1,471,831 805,780 666,051 Total charges for appropriations 1,143,173 1,471,831 805,780 666,051 Deficiency of revenues
under expenditures (817,321) (1,145,979) (59,505) 1,086,474 Other financing sources (uses)
Transfers in 175,000 175,000 175,000 - Total other financing
sources (uses) 175,000 175,000 175,000 - Net change in fund balance (642,321)$ (970,979)$ 115,495 1,086,474$ Beginning fund balance 8,519,770
Ending fund balance 8,635,265$
Budgeted Amounts

MAJOR PROPRIETARY FUNDS

33. Proprietary funds account for City operations financed and operated in a manner similar to a private business enterprise. The intent of the City is that the cost of providing goods and services be financed primarily through user charges.

The City has identified the funds below as major proprietary funds for fiscal 2018 - 19.

Resources Recovery Fund: This fund accounts for activity related to the collection, disposal, and recycling of solid waste. A private company has been issued an exclusive franchise to perform these services.

Recreation Programs Fund: This fund accounts for activities of the City's community centers and park facilities.

Cupertino Sports Center Fund: This fund accounts for the operation and maintenance of the Cupertino Sports Center.

CITY OF CUPERTINO, CALIFORNIA

PROPRIETARY FUNDS

STATEMENT OF NET POSITION
June 30, 2019

See accompanying notes to financial statements.

34. Governmental
Cupertino Nonmajor Activities -
Resources Recreation Sports Enterprise Internal Service Recovery Programs Center Fund Totals Funds
ASSETS
Current assets
Cash and cash investments (Note 2) 6,173,976$ 2,515,063$ 1,475,172$ 231,703$ 10,395,914$ 7,556,469$ Accounts receivable 239,811 95,859 60 - 335,730 - Total current assets 6,413,787 2,610,922 1,475,232 231,703 10,731,644 7,556,469 Noncurrent assets
Net OPEB asset (Note 11) 30,812 17,214 18,593 4,471 71,090 78,973 Capital assets (Note 5): -
Nondepreciable - - - - - 10,045 Depreciable, net of -
accumulated depreciation 10,454 876,173 399,545 32,572 1,318,744 3,673,149 Total noncurrent assets 41,266 893,387 418,138 37,043 1,389,834 3,762,167 Total assets 6,455,053 3,504,309 1,893,370 268,746 12,121,478 11,318,636

DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10) 203,243 166,634 114,015 54,717 538,609 505,804 Total deferred outflows of resources 203,243 166,634 114,015 54,717 538,609 505,804

LIABILITIES
Current liabilities
Accounts payable and accruals 10,189 122,878 223,031 12,675 368,773 235,702 Accrued payroll and benefits 289 - - - 289 72 Due to other funds (Note 4) - - - - - 410,544 Compensated absences (Note 1): 19,723 20,564 7,781 7,599 55,667 22,270 Claims payable (Note 9) - - - - - 313,291 Unearned revenue - 742,210 404,185 16,162 1,162,557 - Total current liabilities 30,201 885,652 634,997 36,436 1,587,286 981,879 Noncurrent liabilities
Compensated absences (Note 1) 109,716 114,393 43,284 42,271 309,664 182,611 Claims payable (Note 9) - - - - - 1,239,986 Net pension liability (Note 10) 969,052 788,685 542,150 249,848 2,549,735 2,420,700 Total noncurrent liabilities 1,078,768 903,078 585,434 292,119 2,859,399 3,843,297 Total liabilities 1,108,969 1,788,730 1,220,431 328,555 4,446,685 4,825,176

DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10) 16,234 12,380 9,909 4,457 42,980 42,562 Related to OPEB (Note 11) 47,399 31,080 28,699 6,742 113,920 106,525 Total deferred inflows of resources 63,633 43,460 38,608 11,199 156,900 149,087 NET POSITION (Note 7)
Net investment in capital assets 10,454 876,173 399,545 32,572 1,318,744 3,673,149 Unrestricted 5,475,240 962,580 348,801 (48,863) 6,737,758 3,177,028 Total Net Position 5,485,694$ 1,838,753$ 748,346$ (16,291)$ 8,056,502$ 6,850,177$ Business-type Activities - Enterprise Funds

CITY OF CUPERTINO, CALIFORNIA

PROPRIETARY FUNDS

STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN NET POSITION
June 30, 2019

See accompanying notes to financial statements.

35. Governmental
Cupertino Nonmajor Activities -
Resources Recreation Sports Enterprise Internal Service Recovery Programs Center Fund Totals Funds
Operating revenues
Charges for services 1,658,613$ 1,847,191$ 2,348,650$ 288,126$ 6,142,580$ 5,472,240$ Other 91,666 139,590 818 28,489 260,563 - Total operating revenue 1,750,279 1,986,781 2,349,468 316,615 6,403,143 5,472,240 Operating expenses
Salaries and benefits 723,529 888,401 583,087 201,744 2,396,761 2,983,802 Materials and supplies 225,450 562,688 437,229 167,273 1,392,640 1,931,290 Contractual services 783,591 1,253,941 1,963,769 258,580 4,259,881 285,819 Insurance and claims and premium - - - - - 840,427 Depreciation (Note 5) 3,315 218,306 51,952 17,872 291,445 897,684 Total operating expenses 1,735,885 2,923,336 3,036,037 645,469 8,340,727 6,939,022 Operating income (loss) 14,394 (936,555) (686,569) (328,854) (1,937,584) (1,466,782) Nonoperating revenues
Investment Income 156,670 67,618 38,208 7,875 270,371 200,467 Total nonoperating revenues 156,670 67,618 38,208 7,875 270,371 200,467 Income (loss) before transfers 171,064 (868,937) (648,361) (320,979) (1,667,213) (1,266,315) Transfers in (Note 4) - - - 75,000 75,000 1,578,474 Changes in net position 171,064 (868,937) (648,361) (245,979) (1,592,213) 312,159 Net position - beginning of year 5,314,630 2,707,690 1,396,707 229,688 9,648,715 6,538,018 Net position - end of year 5,485,694$ 1,838,753$ 748,346$ (16,291)$ 8,056,502$ 6,850,177$ Business-type Activities - Enterprise Funds

CITY OF CUPERTINO, CALIFORNIA

PROPRIETARY FUNDS

STATEMENT CASH FLOWS
For the year ended June 30, 2019

See accompanying notes to financial statements.

36. Governmental
Cupertino Nonmajor Activities -
Resources Recreation Sports Enterprise Internal Service Recovery Programs Center Fund Totals Funds
Cash flows from operating activities
Cash received from customers 2,036,654$ 2,065,128$ 2,603,259$ 332,777$ 7,037,818$ 5,472,240$ Cash payments to suppliers for
goods and services (1,142,360) (1,920,691) (2,396,534) (465,018) (5,924,603) (2,147,474) Cash payments to employees for salaries and benefits (701,574) (867,380) (554,768) (197,342) (2,321,064) (2,877,076) Cash payments for judgment and claims - - - - - (656,315) Net cash provided (used) by operating activities 192,720 (722,943) (348,043) (329,583) (1,207,849) (208,625) Cash flows from noncapital financing activities
Transfers in - - - 75,000 75,000 1,712,744 Cash flows from noncapital financing activities - - - 75,000 75,000 1,712,744 Cash flows from capital and related financing activities Acquisition of capital assets - - (12,490) - (12,490) (1,041,176) Cash flows from capital and related financing activities - - (12,490) - (12,490) (1,041,176) Cash Flows from investing activities
Interest received 156,670 67,618 38,208 7,875 270,371 200,467 Cash flows from investing activities 156,670 67,618 38,208 7,875 270,371 200,467 Net cash flows 349,390 (655,325) (322,325) (246,708) (874,968) 663,410 Cash and investments at beginning of year 5,824,586 3,170,388 1,797,497 478,411 11,270,882 6,893,059 Cash and investments at end of year 6,173,976$ 2,515,063$ 1,475,172$ 231,703$ 10,395,914$ 7,556,469$ Reconciliation of operating income (loss) to
to net cash provided by operating activities:

Operating income (loss) 14,394$ (936,555)$ (686,569)$ (328,854)$ (1,937,584)$ (1,466,782)$ Adjustments to reconcile operating income to
net cash provided by operating activities:

Depreciation 3,315 218,306 51,952 17,872 291,445 897,684$ Change in assets, deferred outflows of resources, liabilities and deferred inflows of resources
Accounts receivable 286,375 (95,859) (60) - 190,456 - Prepaid expense - - - - - - Due to retirement system 52,759 42,431 27,953 10,074 133,217 131,588 Due to OPEB system (27,522) (16,268) (16,626) (3,966) (64,382) (67,630) Accounts payable and accruals (133,319) (104,062) 4,464 (39,165) (272,082) 69,635 Unearned revenue - 174,206 253,851 16,162 444,219 - Compensated absences (3,282) (5,142) 16,992 (1,706) 6,862 42,768 Claims payable - - - - - 184,112 Net cash provided (used) by operating activities 192,720$ (722,943)$ (348,043)$ (329,583)$ (1,207,849)$ (208,625)$ Business-type Activities - Enterprise Funds

FIDUCIARY FUND

37. Fiduciary funds account for activities where the City holds related resources in trust for specific purposes but cannot claim the resources with those that belong to the City.

Other Post-Employment Benefits Trust Fund: This fund accounts for activity related the City’s OPEB plan administered through a qualified trust.

CITY OF CUPERTINO, CALIFORNIA

FIDUCIARY FUND

STATEMENT OF FIDUCIARY NET POSITION
June 30, 2019

See accompanying notes to financial statements.

38. Other Post-
Employment
Benefits
Trust Fund
ASSETS
Cash and equivalents 371,864$
Investments:

Mutual funds:

Fixed income 8,475,892
Equity 18,564,242
Real estate 1,806,237
Total assets 29,218,235

LIABILITIES -

NET POSITION
Restricted for post-employment benefits other than pensions 29,218,235$

CITY OF CUPERTINO, CALIFORNIA

FIDUCIARY FUND

STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
For the year ended June 30, 2019

See accompanying notes to financial statements.

39. Other Post-
Employment
Benefits
Trust Fund

ADDITIONS
Employer contributions 1,075,908$
Investment income:

Net increase in fair value of investments 345,977
Interest and dividends 1,635,529
Less investment expense (722,346)
Total additions 2,335,068

DEDUCTIONS
Benefit payments 1,075,908
Administrative expense 97,397
Total deductions 1,173,305
Change in net position 1,161,763
Net position - beginning of year 28,056,472
Net position - end of year 29,218,235$

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

40. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity: The City of Cupertino, California (the City) was incorporated on October 3, 1955, under the laws of the State of California. The City operates under a Council - City Manager form of government and provides services through the following departments: Administrative Services, Community Development, City Manager, Parks and Recreation, Public and Environmental Affairs, and Public Works.

Fire services are provided by the Santa Clara County Fire District, and the City contracts with the Santa Clara County Sheriff’s Department for police services, and with Recology for garbage and recycling services.

The accompanying basic financial statements include all funds and boards and commissions that are controlled by the City Council. The basic financial statements include the City's blended component unit entity for which the City is considered to be financially accountable. A blended component unit, although a legally separate entity, is in substance, part of the City's operations and so data from this unit is combined with the City.

Blended Component Unit: The Cupertino Public Facilities Corporation (the Corporation) was incorporated in May 1986, under the Nonprofit Public Benefit Corporation Law of the State of California. The Corporation was organized as a nonprofit corporation solely for the purpose of assisting the City in the acquisition, construction, and financing of public improvements which are of public benefit to the City. The Corporation, after acquiring certain properties from the City, leases these back to the City. The lease money provides the funds for the debt service for the Certificates of Participation issued by the Corporation to acquire the properties. The Corporation does not issue separate financial statements, since it is reported separately in the City's basic financial statements.

Fiduciary Component Unit: The City participates in the Public Agency Retirement System (PARS) Public Agencies Post Retirement Health Care Plan Trust Program (PARS Trust), an agent-multiple employer irrevocable trust established to fund other postemployment benefits. The PARS Trust functions for the benefit of the employees. The City funds all PARS Trust costs based on actuarial valuations for its specific portion of the PARS Trust as opposed to the PARS Trust as a whole.

Effective July 1, 2016, the City reported in its fiduciary fund financial statements the PARS Trust that pertains to the City as well as OPEB benefit payments of the Plan initiated by the City but reimbursed to the PARS Trust are required to be recognized under applicable standards due to a change in the reporting entity. With the implementation of GASB Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, the City reviewed the PARS Trust separately issued financial statements and determined that inclusion of the City OPEB Plan component unit financial statements and related disclosures as a City trust fund were necessary as omission would have been misleading.

Measurement Focus, Basis of Accounting and Basis of Presentation: The City's basic financial statements are prepared in conformity with accounting principles generally accepted in the United States. The Government Accounting Standards Board (GASB) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States.

Government-wide Statements: The Statement of Net Position and the Statement of Activities display information about the primary government (the City) and its component units. These statements include the financial activities of the overall City government and distinguish between the governmental and business- type activities of the City. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

41. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Statement of Activities presents a comparison between expenses and program revenues for each segment of the business-type activities of the City and for each function of the City's governmental activities.

Expenses include direct and indirect types. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses such as depreciation, information technology, insurance and equipment replacement are included in expenses for individual activities and functions. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital needs of a particular program. Revenues that are not classified as program revenues, including taxes, are presented as general revenues. Program revenues and direct expenses related to interfund services are included and indirect expenses funded by interfund transfers are excluded from the Statement of Activities. The Statement of Net Position eliminates interfund balances between governmental funds and interfund balances between proprietary funds.

Fund Financial Statements: The fund financial statements provide information about the City's funds, including fiduciary funds and blended component units. Separate statements for each fund category — governmental, proprietary, and fiduciary — are presented. The emphasis of fund financial statements is on major individual governmental and enterprise funds, each of which is displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds.

Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities.

Major Funds: The City's major governmental and enterprise funds are identified and presented separately in the fund financial statements. All other funds, called nonmajor funds, are combined and reported in a single column, regardless of their fund type.

Major funds are defined as funds, which have either assets (plus deferred outflows), liabilities (plus deferred inflows), revenues or expenditures in excess of 10 percent of their fund-type total and five percent of the aggregate total for both governmental funds and enterprise funds. The General Fund is always a major fund. The City may select other funds it believes should be presented as major funds.

The City reported the following major governmental funds in the accompanying financial statements:

 The General Fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund.  The Transportation Special Revenue Fund accounts for the City's gas tax, vehicle registration fees and grant revenues and expenditures related to the maintenance and construction of City streets.

All revenue in this fund is restricted exclusively for street and road purposes including related engineering and administrative expenses. Management considers this fund qualitatively major and has elected to present this fund as such, even if mathematically it does not qualify per applicable GASB requirements.
 The Housing Development Special Revenue Fund accounts for the Federal Housing and Community Development Grant Program activities administered through the County. Monies collected from developers that mitigate the impact of housing needs are also included. Monies in this fund are governed by the program's rules.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

42. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 The Public Facilities Corporation Debt Service Fund accounts for the payments of principal and interest on certificates of participation issued to provide for the financing of City Hall, Library, Wilson Park, Memorial Park, and other City facilities.
 Capital Improvement Projects Capital Projects Fund Accounts for activities related to the acquisition or construction of major capital facilities.

The City reports the following enterprise funds as major funds in the accompanying financial statements:

 The Resources Recovery Fund accounts for activity related to the collection, disposal, and recycling of solid waste. A private company has been issued an exclusive franchise to perform these services.
 The Recreation Programs Fund accounts for activities of the City's community centers and park facilities.
 The Cupertino Sports Center Fund accounts for activities of the City’s sports center facilitiy.

The City also reports the following fund types:

 Internal Service Funds. These funds account for workers' compensation, management information systems maintenance and replacement, equipment maintenance and replacement, retiree health costs, accrued leave payouts, and long-term disability coverage which are provided to other departments on a cost-reimbursement basis.

 Fiduciary Fund. The City’s Other Post-Employment Benefits (OPEB) Trust fund is established in accordance with GASB Statement No. 74 for the defined benefit OPEB plan administered though trusts that meet the specified criteria.

Basis of Accounting: The government-wide, proprietary and fiduciary financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.

Unearned revenues are considered on a full accrual basis, while unavailable revenues are based on the modified accrual measure.

Sales taxes collected and held by the state at year end on behalf of the City are also recognized as revenue.

Sales tax consultant payments which are contingent on revenues collected are netted against the related revenues.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

43. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Under the terms of grant agreements, the City may fund certain programs with a combination of cost reimbursement grants, categorical block grants, and general revenue. The City's policy is to first apply restricted grant resources to such programs, followed by general revenues if necessary. Grant revenues are recognized after eligibility and billing occurs, but may be a deferred inflow if not received within sixty days of year-end. Because of the cost-reimbursement and recognition nature of some grants, certain capital project funds may carry deficit fund balances until billing and receipt of grants. The City may also front the capital outlays with cash advances from other funds.

Non-exchange transactions, in which the City gives or receives value without directly receiving or giving equal value in exchange, include property taxes, grants, entitlements, and donations. On the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied or assessed.

Revenue from grants is recognized as described above. Entitlement and donation revenues are recognized when cash is received.

Budgetary Practices: The budget of the City is a detailed operating plan which identifies estimated costs and results in relation to estimated revenues. The budget includes (1) the programs, projects, services and activities to be provided during the fiscal year; (2) estimated revenue available to finance the operating plan; and (3) the estimated spending requirements of the operating plan. The budget represents a process through which policy decisions are made, implemented and controlled. The City prohibits expending funds for which there is no legal appropriation. Operating appropriations lapse at fiscal year end.

In May of each year, the City Manager submits to the City Council a proposed budget for the fiscal year beginning July 1. Public hearings on the proposed budget are held during the month of June and the budgets for all fund types are legally adopted by Resolution prior to June 30. Original budget amounts are presented on the accompanying budgetary statements include these legally adopted amounts.

The City's legal level of budgetary control is at the functional level for the general fund and at the fund level for other funds. The City Manager is responsible for controlling the City's expenditures in accordance with the adopted budget. The City Manager is authorized to administer and transfer appropriations between budget accounts within the operating budget when in his opinion such transfers become necessary for administrative purposes. Any revision which increases total appropriations must be approved by the City Council. Requests for additional personnel or capital outlay also require the approval of the City Council.

Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles. Budget information is presented for the general, special revenue and debt service funds only.

Capital projects funds are budgeted on a long-term project-by-project basis and, hence, budgets for these funds are not presented in the basic financial statements.

During the fiscal year, expenditures exceeded appropriations as follows:

Excess of
Expenditures
Fund/Department Over Appropriations

Public Facilities Corporation Debt Service Fund $ 1,500

Cash and Investments: The City pools its cash resources, consisting of cash and investments, of all funds for investment except for restricted funds generally held by an outside fiscal agent. Cash amounts are reported net of outstanding warrants. Investments are stated at fair value, except for money market mutual funds which are reported at amortized cost.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

44. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Capital Assets: Capital assets are recorded at cost or estimated historical cost if purchased or constructed.

Donated capital assets are recorded at their estimated acquisition value on the date donated. Public domain (infrastructure) capital assets consisting of roads, bridges, curbs, gutters, medians, sidewalks, drainage and lighting systems have been capitalized and depreciated. Capital assets are defined as assets with an initial individual cost of more than $5,000 for general capital assets and $100,000 for intangible assets.

Depreciation is recorded using the straight-line method over the following useful lives:

Buildings 15 – 25 years
Improvements 10 – 15 years
Vehicles 4 – 10 years
Street equipment 3 – 20 years
Water equipment 3 – 50 years
Office equipment 3 – 5 years
Road, curbs, gutters, sidewalks, medians and bridges 30 – 40 years Streetlights 20 years
Storm drain structure and mains 40 years
Traffic signals 20 years

Major outlays for capital assets and improvements are capitalized as projects are constructed. For enterprise funds, interest incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Some capital assets may be acquired using federal and state grant funds, or they may be contributed by developers or other governments. These contributions are accounted for as revenues at the time the capital assets are contributed.

Claims and Judgment Payable: Claims and judgments payable are accrued when the liability is incurred and the amount can be reasonably estimated. Claims and judgments payable are recorded in an internal service fund for workers' compensation and long-term disability, and other claims and judgments are recorded in the General Fund or enterprise funds, as appropriate.

Compensated Absences: Compensated absences comprise vested accumulated vacation and sick leave.

The City's liability for compensated absences is recorded in governmental or business-type activities as appropriate. The liability for compensated absences is determined annually. For all governmental funds, amounts expected to be "permanently liquidated," such as what is due to be paid because of a realized employment action, are recorded as fund liabilities; the long-term portion is recorded in the Statement of Net Position.

Compensated absences are liquidated by the fund that has recorded the liability. The long-term portion of governmental activities compensated absences are liquidated primarily by the General Fund, using the Compensated Absences and Long-Term Disability internal service fund to account for termination payouts.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

45. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The changes in compensated absences for the year ended June 30, 2019 were as follows:

Governmental Business-Type
Activities Activities Total

Beginning balance $ 3,997,167 $ 358,469 $ 4,355,636
Additions 1,455,880 16,687 1,472,567
Reductions (702,577) (9,825) (712,402)

Ending balance $ 4,750,470 $ 365,331 $ 5,115,801

Current portion $ 516,355 $ 55,667 $ 572,022

Non-current portion $ 4,234,115 $ 309,664 $ 4,543,779

Deferred Outflows/Inflows of Resources: In addition to assets, the statement of financial position or balance sheet reports a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position or fund balance that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City reports differences between expected and actual experience, changes in pension and OPEB assumptions, loss on pension and OPEB investments, and contributions made subsequent to the measurement date as well. Differences between expected and actual experience and changes in pension and OPEB plan assumptions are deferred and amortized over the average of the expected remaining service lives of employees who are provided with benefits through the pension and OPEB plans. Loss on pension and OPEB investments are deferred and amortized over five years. Employer contributions made subsequent to the measurement date and change in proportionate share are deferred and recognized as a reduction of the net pension and net OPEB liability in the subsequent reporting year.

In addition to liabilities, the statement of financial position or balance sheet reports a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position or fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. Under the accrual basis of accounting differences between expected and actual experience are deferred and amortized over the average of the expected remaining service lives of all employees who are provided with benefits through the pension and OPEB plans.

Property Tax Calendar: All property taxes are levied and collected by the County of Santa Clara. Secured taxes are levied on July 1, are due in two installments on November 1 and February 1 and become delinquent after December 10 and April 10. Unsecured taxes are levied on July 1 and become delinquent on August 31. The lien date for secured and unsecured property taxes is January 1.

The City, in fiscal year 1993-94, adopted an alternative method of property tax distribution (the "Teeter Plan"). Under this method, the City receives 100 percent of its secured property tax levied in exchange for foregoing any interest and penalties collected on delinquent taxes. The City receives remittances as a series of advances made by the County during the year.

Interfund Transactions: Transactions constituting reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

46. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Statement of Cash Flows: For purposes of reporting cash flows for the City's proprietary funds, pooled cash and investments are considered cash equivalents as the proprietary funds can access pooled cash and investments in a manner similar to a demand deposit account.

Prepaid Items: Prepaid items are reported under the consumption method, which recognizes the expenditures/expense in the period associated with the service rendered or goods consumed.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from those estimates.

Implementation of Governmental Accounting Standards Board (GASB) Pronouncements: Management adopted the provisions of the following Governmental Accounting Standards Board (GASB) Statements, which became effective during the year ended June 30, 2018.

In November 2016, the GASB issued Statement 83, Certain Asset Retirement Obligations. This Statement addresses accounting and financial reporting for certain asset retirement obligations (AROs) and establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for AROs. This Statement is effective for the City’s fiscal year ended June 30, 2019. This statement will have no material impact on the City’s financial statements.

In April 2018, the GASB issued Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements . The primary objective of this Statement is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements. It clarifies which liabilities governments should include when disclosing information related to debt. It also defines debt for purposes of disclosure in notes to financial statements as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established.

This Statement is effective for the City’s fiscal year ended June 30, 2019. This statement will have no material impact on the City’s financial statements.

Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels based on the extent to which inputs used in measuring fair value are observable in the market:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are inputs — other than quoted prices included within level 1 — that are observable for an asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for an asset or liability.

If the fair value of an asset or liability is measured using inputs from more than one level of the fair value hierarchy, the measurement is considered to be based on the lowest priority level input that is significant to the entire measurement.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

47. NOTE 2 – CASH AND INVESTMENTS

Primary Government: The City's pooled idle funds are invested pursuant to investment policy guidelines adopted by the City Council. The objectives of the policy are to invest funds to the fullest extent possible and to invest in accordance with the provisions of the California Government Code with the priority of safety, liquidity and yield. The policy addresses the safekeeping of securities, types of investment instruments, diversification, maturities, reporting requirements, and internal control. The City maintains a cash and investment pool that is available for use by all funds. Each fund type's portion of this pool is displayed on the Statement of Net Position and the balance sheet as "cash and investments."

Policies: California Law requires banks and savings and loan institutions to pledge government securities with a market value of 110 percent of the City's cash on deposit, or first trust deed mortgage notes with a market value of 150 percent of the deposit, as collateral for these deposits. Under California Law, this collateral is held in a separate investment pool by another institution in the City's name and places the City ahead of general creditors of the institution.

The City and its fiscal agents invest in individual investments and in investment pools. Individual investments are evidenced by specific identifiable securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system.

Security instruments owned by the City are held in safekeeping by a third party custodian acting as agent for the City under the terms of a custody agreement.

The City's investments are carried at fair value with the exception of money market mutual funds, which are carried at amortized cost. The City adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments in investment income for that fiscal year.

Classification: The City's total cash and investments, at fair value, are presented on the financial statements in the following allocation:

Primary Government

Cash and investments $ 142,928,016
Restricted cash and investments:

Held by fiscal agent for pension 8,109,521
Held by fiscal agent for bond repayments 4,302,847

Total cash and investments $ 155,340,384

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

48. NOTE 2 – CASH AND INVESTMENTS (Continued)

Authorized Investments by the City: The City's Investment Policy and the California Government Code allow the City to invest its pooled idle funds in the following, under limits and provisions that address interest rate risk, credit risk, and concentration of credit risk. This does not include the City's investments of debt proceeds held by fiscal agents that are governed by the provisions of debt agreements of the City.

Minimum Maximum Maximum
Maximum Credit Percentage of Investment in
Authorized Investment Type Maturity Quality Portfolio One Issuer

U.S. Treasury Obligations 5 years N/A None None
U.S. Agency Securities * 5 years N/A None None
California Local Agency Investment
Fund (LAIF) N/A N/A Up to $65 million None
Non-negotiable Certificates of
Deposits (time deposits) 5 years N/A 30%*** 10% of portfolio; 5% of issuer’s net worth **
State of California registered state
warrants, treasury notes, or bonds 5 years N/A None None California local agency bonds, notes,
warrants, or other obligations 5 years N/A None None
Bond issued by the local agency 5 years N/A None None
Bankers' Acceptances 180 days N/A 40% None
Commercial Paper 270 days A-1+P-1 25% 10% of portfolio; 5% of issuer’s net worth; 10% of
outstanding paper of
Issuer. **
Negotiable Certificates of Deposit 5 years N/A 30% 10% of portfolio; 5% of issuer’s net worth. **
Repurchase Agreements 1 year N/A None 10% of portfolio; 5% of issuer’s net worth. **
Medium Term Corporate Notes 5 years A or better 30% 10% of portfolio; 5% of issuer’s net worth. **
Money market mutual funds investing
in U.S. Treasury, Government Agency
securities or repurchase agreements
collateralized by U.S. Treasury or
Government Agency securities 5 years Aaa/AAA 20% None

Supranationals 5 years AA or better 30% 10% of portfolio

* Securities issued by agencies of the federal government such as the Government National Mortgage Association (GNMA), the Federal Farm Credit System (FFCB), the Federal Home Loan Bank (FHLB), the Federal National Mortgage Association (FNMA), the Student Loan Marketing Association (SLMA), and the Federal Home Loan Mortgage Association (FHLMC).

** Represents restriction in which the City's investment policy is more restrictive than the California Government Code.

*** 30% maximum percent of portfolio if using a private sector entity to assist in the placement of the time deposits. No maximum for others.

Authorized Investments by Debt Agreements: The City must maintain required amounts of cash and investments with trustees or fiscal agents under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged reserves to be used if the City fails to meet its obligations under these debt issues. The California Government Code requires these funds to be invested in accordance with City ordinances, bond indentures or State statutes. The City's Investment Policy allows investments of bond proceeds to be governed by provisions of the related bond indentures. The following identifies the investment types that are authorized for investments held by fiscal agents under the terms of the bond indentures of the related debt issue:

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

49. NOTE 2 – CASH AND INVESTMENTS (Continued)

Minimum Maximum
Maximum Credit Percentage of
Authorized Investment Type Maturity Quality Portfolio

Cash or obligations of the U.S. including U.S. Treasury obligations N/A N/A None Federal agencies obligations which represent
full faith and credit of the U.S. N/A N/A None
Direct federal agencies obligations which are not
fully guaranteed by the full faith and credit of the U.S. N/A N/A None U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks 360 days P-1, A-1+, A-1 None Commercial Paper 270 days P-1, A-1 None
Money market funds N/A Aaam or AAAm-G None
Pre-refunded municipal obligations that are not callable prior to maturity or as to which irrevocable instructions have been Highest given to call on the date specified in the notice N/A rating category None Municipal obligations or General obligations of states N/A Aaa, AAA, A2, A None California Local Agency Investment Fund (LAIF) N/A N/A Up to $65 million Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by Section 53635 of Title 5, Division 2, Chapter of the California Government Code, as it may be amended. N/A N/A None

Interest Rate Risk: Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates.

Information about the sensitivity of the fair values of the City's investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the City's investments by maturity or earliest call date:

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

50. NOTE 2 – CASH AND INVESTMENTS (Continued)

The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The Local Investment Advisory Board (Board) has oversight responsibility for LAIF. The Board consists of five members as designated by State Statute. The City reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value of the pool share. The balance is available for withdrawal on demand, and is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Included in LAIF's investment portfolio are U.S. Treasuries, Federal Agency obligations, time deposits, negotiable certificates of deposits, commercial paper, corporate bonds, and security loans. These investments had weighted average maturity of 167 days.

Money market mutual funds are available for withdrawal on demand. At June 30, 2019, money market mutual funds, used for pooled investment and held by fiscal agent purposes, had a weighted average maturity of 32 days or less.

Fair Value Hierarchy: The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs.

The following is a summary of the fair value hierarchy of the fair value of investments of the City as of June 30, 2019:

12 Months 13 to More than
Investment Type or less 24 Months 24 Months Total
U.S. Treasury Securities 5,788,488$ -$ 7,171,286$ 12,959,774$ U.S. Agency Notes
Federal Home Loan Mortgage Corporation 9,953,230 - 3,075,255 13,028,485 Federal National Mortgage Association - 2,984,280 1,562,235 4,546,515 Federal Home Loan Banks 3,997,640 7,808,625 - 11,806,265 Federal Farm Credit Banks 1,992,820 - - 1,992,820 Corporate Notes - 2,863,946 14,412,811 17,276,757 Local Agency Investment Fund 56,954,633 - - 56,954,633 Negotiable Certificates of Deposit 6,000,539 - - 6,000,539 Money Market Mutual Funds 4,434,539 - - 4,434,539 Total investments 89,121,889$ 13,656,851$ 26,221,587$ 129,000,327 Cash in banks and on hand 26,340,057
Total cash and investments 155,340,384$

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

51. NOTE 2 – CASH AND INVESTMENTS (Continued)

Investments classified in Level 1 of the fair value hierarchy include securities valued using quoted prices in active markets. Federal Agency Securities and other U.S. Treasury Securities, classified in Level 2 of the fair value hierarchy are valued using matrix pricing techniques maintained by various pricing vendors.

Matrix pricing is used to value securities based on the securities' relationship to benchmark quoted prices.

Fair value is defined as the quoted market value on the last trading day of the period. These prices are obtained from various pricing sources by the custodian bank. The California Local Agency Investment Fund (LAIF) is valued using factors provided in the Pooled Money Investment Account (PMIA) Performance Report by the State Treasurer’s Office. Money market funds and negotiable certificates of deposit are exempt from fair value measurement and are reported at amortized cost.

Credit Risk: Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual rating as of June 30, 2019 for each investment type, including those with fiscal agents, as provided by Moody's ratings:

Investments by Fair Value Level: Level 1 Level 2 Total
U.S. Treasury Securities -$ 12,959,774$ 12,959,774$ U.S. Agency Notes
Federal Home Loan Mortgage Corporation - 13,028,485 13,028,485 Federal National Mortgage Association - 4,546,515 4,546,515 Federal Home Loan Banks - 11,806,265 11,806,265 Federal Farm Credit Banks - 1,992,820 1,992,820 Corporate Notes - 17,276,757 17,276,757 Total investments -$ 61,610,616$ 61,610,616 Investments Measured at Amortized Cost:

Money Market Mutual Funds 4,434,539
Negotiable Certificates of Deposit 6,000,539
Investments Exempt from Fair Value Hierarchy:

Local Agency Investment Fund 56,954,633
Cash in banks and on hand 26,340,057
Total cash and investments 155,340,384$
Investment Type Ratings Total
Money Market Mutual Funds Aaa 4,434,539$
Negotiable Certificates of Deposit Aaa 6,000,539
Corporate Notes A1 17,276,757
U.S. Agency Notes
Federal Home Loan Mortgage Corporation Aaa 13,028,485
Federal National Mortgage Association Aaa 4,546,515
Federal Home Loan Banks Aaa 11,806,265
Federal Farm Credit Banks Aaa 1,992,820
U.S. Treasury Securities Aaa 12,959,774
Not rated:

Local Agency Investment Fund Not Rated 56,954,633
Total investments 129,000,327$

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

52. NOTE 2 – CASH AND INVESTMENTS (Continued)

Concentration of Credit Risk: The City's investment policy contains certain limitations on the amount that can be invested in any one issuer. In certain categories, these limitations are more restrictive than those required by California Government Code Sections 53600 et seq. Excluding those issued or explicitly guaranteed by the U.S. government and investments in the local agency investment fund and mutual funds, the City had the following investments that represent five percent or more of total City-wide investments:

Issuer Investment Type Amount

Federal Home Loan Mortgage Corporation (FHLMC) U.S. Agency Notes $ 13,028,485 Federal Home Loan Banks (FHLB) U.S. Agency Notes 11,806,265

OPEB Trust: The OPEB Trust's pooled idle funds are invested pursuant to investment policy guidelines adopted by the Plan. The objectives of the policy are to invest funds to the fullest extent possible and to invest in accordance with the provisions of the California Government Code with the priority of safety, liquidity and yield. The policy addresses the safekeeping of securities, types of investment instruments, diversification, maturities, reporting requirements, and internal control. The Plan maintains a cash and investment pool that is available for use only by the plan and not any other City funds.

Policies: California Law requires banks and savings and loan institutions to pledge government securities with a market value of 110 percent of the Plan's cash on deposit, or first trust deed mortgage notes with a market value of 150 percent of the deposit, as collateral for these deposits. Under California Law, this collateral is held in a separate investment pool by another institution in the Plans name and places the Plan ahead of general creditors of the institution.

The Plan and its fiscal agent invest in individual investments and in investment pools. Individual investments are evidenced by specific identifiable securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system.

Security instruments owned by the Plan are held in safekeeping by a third party custodian acting as agent for the City under the terms of a custody agreement.

The Plan's investments are carried at fair value with the exception of money market mutual funds which are carried at amortized cost. The Plan adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments in investment income for that fiscal year.

Classification: The Plan's total cash and investments, at fair value, are presented on the fiduciary fund financial statements.

Authorized Investments: The Plan's Investment Policy and the California Government Code allow the Plan to invest its pooled idle funds in the following, under limits and provisions that address interest rate risk, credit risk, and concentration of credit risk. Specifics of the policy are:

Fixed Income Assets: The fixed income investments are to maintain intermediate-term average weighted duration, between three-seven years. At the time of purchase, no single fixed income issuer shall exceed two percent of the total market value of the Portfolio, with the exception of U.S.

Treasury or Agency obligations. The direct high-yield portion shall constitute no more than 10 percent of the total market value of the Portfolio.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

53. NOTE 2 – CASH AND INVESTMENTS (Continued)

Equity & Growth Assets: The domestic equity investments are expected to be diversified at all times by size, industry, sector, and style (Large Cap, Mid Cap, and Small Cap). At the time of purchase, no individual equity security shall exceed two percent of the total market value of the Portfolio. The international equity investments (including emerging markets) shall constitute no more than 20 percent of the total market value of the Portfolio. The real estate investments shall be captured through the use of diversified mutual funds or ETFs investing in REITs; and shall constitute no more than 15 percent of the total market value of the Portfolio. The commodities investments shall be captured through the use of diversified mutual funds or ETFs; and shall constitute no more than 10 percent of the total market value of the Portfolio.

Permitted Asset Classes and Security Types
 Fixed Income & Cash Equivalent Investments:
• Domestic Certificates of Deposit (rated A-1/P-1 or better) • Domestic Commercial Paper (rated A-1/P-1 or better)
• Floating Rate Notes
• Money Market Mutual Funds
• U.S. Treasury Bonds, Bills and Notes
• U.S. Agency (and Instrumentality) Discount Notes, Notes, and Bonds • Treasury Inflation-Protected Securities (TIPS)
• Municipal Bonds and Notes
• Corporate Bonds
• Mortgage-Backed Bonds (MBS)
• Asset-Backed Bonds (ABS)
• High-Yield Bonds (rated B-/B3 or better)
• Dollar denominated Foreign Bonds and Notes
• Bond Mutual Funds

 Equity Investments:
• Common & Preferred Stocks
• American Depository Receipts (ADRs)
• Domestic and International Equity Mutual Funds (Open and Closed) • Emerging Market Equity Funds or Exchange Traded Funds (ETFs)

 Alternative Investments:
• Commodities Mutual Funds or Exchange Traded Notes (ETNs) • REIT Investment or Pooled Strategy or Fund of REITs
• Registered Hedge Funds or Hedge Fund of Funds

Money market mutual funds are available for withdrawal on demand. At June 30, 2019, money market mutual funds, used for investment and held by fiscal agent purposes, had a weighted average maturity of

7.33 days or less.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

54. NOTE 2 – CASH AND INVESTMENTS (Continued)

Fair Value Hierarchy: The Plan categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The Plan’s investments in mutual funds are valued at fair value and are considered Level 1 investments.

Credit Risk: Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. As the Plan is invested in mutual funds, there are no available credit risk ratings.

Concentration of Credit Risk: The Plan's investment policy contains certain limitations on the amount that can be invested in any one issuer. In certain categories, these limitations are more restrictive than those required by California Government Code Sections 53600 et seq. Excluding those issued or explicitly guaranteed by the U.S. government and investments in the local agency investment fund and mutual funds, the Plan did not have investments that represent five percent or more of total Plan investments.

NOTE 3 — LOANS RECEIVABLE

Housing Program Loans: On June 30, 1995, the City loaned $821,000 to Community Housing Developers, a California nonprofit public benefit corporation. The note bears interest at three percent per annum, compounded annually, payable to the extent of surplus cash, and all unpaid principal and interest due June 30, 2035. At June 30, 2019, the balance remaining on the loan was $821,000. The loan was issued using resources in the Housing Development Fund and is considered governmental activities.

On June 6, 1996, the City loaned $320,000 to Cupertino Community Services, a California nonprofit public benefit corporation. The note bears interest at three percent per annum and due on July 14, 2026. At June 30, 2019, the balance on the loan was $178,952. The loan was issued using resources in the Housing Development Fund and is considered governmental activities.

On September 11, 2017 the City loaned $3,672,000 to Stevens Creek, L.P., a California limited partnership.

The note bears interest at three percent per annum for 55 years. After the completion of construction of the development, no later than April 30 th of each calendar year, the Developer shall make repayments of the loan in an amount equal to the City loan percentage of the lenders’ share of residual receipts. The payments shall be credited first against accrued interest and then against outstanding principal of the loan, and shall be accompanied by the developer’s report of residual receipts. At June 30, 2019, the balance remaining on the loan was $3,672,000. The loan was issued using resources in the Housing Development Fund and is considered governmental activities.

In addition to these loans, the City has $40,120 in housing and other loans receivable at June 30, 2019.

These loans bear interest at three to six percent and are due by June 30, 2025. The loan was issued using resources in the Housing Development Fund and is considered governmental activities.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

55. NOTE 4 – INTERFUND TRANSACTIONS

Transfers between funds during the fiscal year ended June 30, 2019 were as follows:

Fund Making Transfers Fund Receiving Transfers Amount Transferred

General Fund Transportation Special Revenue Fund $ 5,800,000 (A) Housing Development Fund 175,000 (C)
Public Financing Corporation Debt Service Fund 3,169,438 (B,D) Capital Improvement Projects Capital Projects Fund 8,017,175 (A) Non-major Governmental Funds 636,000 (C)
Internal Service Funds 1,578,474 (E)

Capital Improvements Projects
Capital Projects Fund Non-major Enterprise Funds 75,000 (A) Non-major Governmental Funds 1,475,000 (C)

Non-major Governmental Funds General Fund 10,000 (F)
Capital Improvement Projects Capital Projects Fund 125,000 (A)

Total Interfund Transfers $ 21,061,087

The reasons for these transfers are set forth below:

(A) To fund capital projects.
(B) For annual lease payment for 2012 Certificates of Participation debt service. (C) To support state-mandated activities including complaint response and enforcement programs. (D) Operating subsidy from General Fund.
(E) To fund IT operations, personnel costs associated with staffing special project, and compensated absences and retiree health. (F) To fund purchase of trees

Current Interfund Balances: Current interfund balances arise in the normal course of business and are expected to be repaid shortly after the end of the fiscal year. At June 30, 2019, the Equipment Revolving Internal Service Fund owed the General Fund $410,544 and the Public Financing Corporation Debt Service Fund owed the General Fund $30,782, for a total owed to the General Fund across all funds of $441,326.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

56. NOTE 5 – CAPITAL ASSETS

A summary of changes in governmental activities capital assets is as follows:

Balance at Balance at
July 1, 2018 Additions Deletions Transfers June 30, 2019 Governmental activities:

Capital assets not being depreciated:

Land 62,045,969$ -$ -$ -$ 62,045,969$ Easements 19,491,959 106,715 - 16,365 19,615,039 Construction in progress 7,153,861 8,757,710 (512,335) (11,843,225) 3,556,011 Total general government capital
assets not being depreciated 88,691,789 8,864,425 (512,335) (11,826,860) 85,217,019 Capital assets being depreciated:

Buildings 45,726,350 - - 428,329 46,154,679 Improvements other than buildings 57,069,878 - - 634,288 57,704,166 Machinery and equipment 3,211,508 - (15,446) 509,824 3,705,886 Roads, curbs, gutters, sidewalks, medians and bridges 160,397,742 - - 9,623,305 170,021,047 Streetlights 8,646,994 - - 191,721 8,838,715 Storm drain structure and mains 36,933,765 - - 439,393 37,373,158 Traffic signals 6,418,246 - - - 6,418,246 Total capital assets being depreciated 318,404,483 - (15,446) 11,826,860 330,215,897 Less accumulated depreciation for:

Buildings (26,676,669) (1,754,999) - - (28,431,668) Improvements other than buildings (36,207,680) (2,584,808) - - (38,792,488) Machinery and equipment (2,268,028) (214,042) 15,446 - (2,466,624) Roads, curbs, gutters, sidewalks, medians and bridges (105,700,435) (2,149,184) - - (107,849,619) Streetlights (7,238,244) (112,000) - - (7,350,244) Storm drain structure and mains (32,249,453) (429,002) - - (32,678,455) Traffic signals (5,463,387) (112,575) - - (5,575,962) Total accumulated depreciation (215,803,896) (7,356,610) 15,446 - (223,145,060) Total general government capital
assets being depreciated, net 102,600,587 (7,356,610) - 11,826,860 107,070,837 Internal service fund capital assets:

Capital assets not being depreciated:

Construction in progress - 10,045 - - 10,045 Total internal fund capital
assets not being depreciated - 10,045 - - 10,045 Capital assets being depreciated:

Machinery and equipment 9,957,114 1,031,131 - - 10,988,245 Less accumulated depreciation (6,417,412) (897,684) - - (7,315,096) Total internal fund capital
assets being depreciated, net 3,539,702 133,447 - - 3,673,149 Governmental activities capital assets, net 194,832,078$ 1,651,307$ (512,335)$ -$ 195,971,050$

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

57. NOTE 5 – CAPITAL ASSETS (Continued)

Depreciation expense was charged to functions and programs based on their usage of the related assets.

Depreciation expense was charged to governmental activities as follows:

Governmental Activities
Administration $ 180,237
Public and Environment Affairs 15,449
Administrative Services 27,955
Parks and Recreation 160,374
Public Works 6,972,595
Internal Service Funds 897,684

Total $ 8,254,294

Depreciation expense was charged to the business-type activities as follows:

Business-Type Activities
Resources Recovery $ 3,315
Blackberry Farm 17,872
Cupertino Sports Center 51,952
Recreation Program 218,306

Total $ 291,445

Balance at Balance at
July 1, 2018 Additions Deletions Transfers June 30, 2019 Business-type activities:

Capital assets not being depreciated:

Construction in progress -$ -$ -$ -$ -$ Total capital assets not being depreciated - - - - - Capital assets being depreciated:

Buildings 1,006,002 - - - 1,006,002 Improvements other than buildings 2,089,743 - - - 2,089,743 Machinery and equipment 623,332 12,490 - - 635,822 Total capital assets being depreciated 3,719,077 12,490 - - 3,731,567 Less accumulated depreciation for:

Buildings (311,114) (60,461) - - (371,575) Improvements other than buildings (1,252,327) (209,415) - - (1,461,742) Machinery and equipment (557,937) (21,569) - - (579,506) Total accumulated depreciation (2,121,378) (291,445) - - (2,412,823) Total capital assets being depreciated, net 1,597,699 (278,955) - - 1,318,744 Business-type activity capital assets, net 1,597,699$ (278,955)$ -$ -$ 1,318,744$

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

58. NOTE 6 – LONG-TERM DEBT

Cupertino Public Facilities Corporation Certificates of Participation:

Original Balance Balance
Issue June 30, June 30, Current
Amount 2018 Retirements 2019 Portion
2012 Refinancing Certificates
of Participation:

0.350-3.125%, due 07/01/2030 $ 43,940,000 $ 31,520,000 $ 2,220,000 $ 29,300,000 $ 2,290,000

Total long-term debt $ 31,520,000 $ 2,220,000 $ 29,300,000 $ 2,290,000

The Cupertino Public Facilities Corporation issued Certificates of Participation to provide financing for the construction of the Community Center, improvements of the City Hall and the Library in July 1986; purchase of Wilson Park in 1989; finance the Memorial Park Expansion in 1990; and purchase the Blackberry Farm and Fremont Older site in 1991. The Cupertino Public Facilities Corporation, as lessor, leased real property to the City (under the Lease Agreement with the lessee) and assigned the base rental payments to the trustee for the benefit of the owners of the certificates of participation. The rental payments which represent the pledged revenues are scheduled to be sufficient in both time and amount, when the principal and interest of the certificates are due, which was the case for the year ended June 30, 2019.

On May 9, 2012, $43,940,000 principal amount of 2012 Refinancing Certificates of Participation (2012 COPs) were issued to refund the 2002 COPs, to fund a reserve fund for the 2012 COPs, and pay costs incurred in connection with issuance.

The 2012 COPs are payable by a pledge of revenues from the lease payments payable by the City pursuant to the Lease Agreement between the Cupertino Public Facilities Corporation and the City for the use and possession of the Site and Facility as described in the Lease Agreement. The City also covenanted in the Lease Agreement to include all lease payments in its annual budget. Total debt service payments remaining on the 2012 COPs is $38,875,109 payable through July 1, 2030. For the year ended June 30, 2019, the bonds had $2,220,000 of principal and $949,438 interest due.

Annual debt service requirements for the 2012 COPS are shown below:

For the Year Governmental Activities
Ending June 30 Principal Interest

2020 $ 2,290,000 $ 882,838
2021 2,355,000 814,138
2022 2,425,000 743,486
2023 2,500,000 670,738
2024 2,575,000 595,738
2025-2029 14,085,000 1,772,240
2030 3,070,000 95,931

Total $ 29,300,000 $ 5,575,109

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

59. NOTE 7 – NET POSITION AND FUND BALANCES

Net Position is measured on the full accrual basis while Fund Balance is measured on the modified accrual basis.

Net Position: The government-wide and proprietary fund financial statements utilize a net position presentation. Net position is categorized as follows:

Net investment in capital assets - This category groups all capital assets including, infrastructure, into one component of net position. Accumulated depreciation and outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduce the balance in this category.

Restricted - This category represents net position that has external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation.

Unrestricted - This category represents net position of the City that do not meet the definition of "net investment in capital assets" or "restricted."
Fund Balances: As prescribed by GASB Statement No. 54, governmental funds report fund balance in classifications based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. Fund balances for governmental funds are made up of the followings:

Nonspendable Fund Balance - includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: prepaid items, property held for resale and long term notes receivable.

Restricted Fund Balance - includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation.

Restrictions may effectively be changed or lifted only with the consent of resource providers.

Committed Fund Balance - includes amounts that can only be used for the specific purposes determined by a formal action of the City's highest level of decision-making authority, the City Council. Commitments may be changed or lifted only by the City taking the same formal action (resolution) that imposed the constraint originally.

Assigned Fund Balance - comprises amounts intended to be used by the City for specific purposes that are neither restricted nor committed. Intent is expressed by the City Council or official to which the City Council has delegated the authority to assign amounts to be used for specific purposes.

Through the adopted budget, the City Council establishes assigned fund balance policy levels and also sets the means and priority for the City Manager to fund these levels.

Unassigned Fund Balance - is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose.

In circumstances when an expenditure may be made for which amounts are available in multiple fund balance classifications, the fund balance in General Fund will generally be used in the order of restricted, unassigned, and then assigned reserves. In other governmental funds, the order will generally be restricted and then assigned.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

60. NOTE 7 - NET POSITION AND FUND BALANCES (Continued)

Fund balances for all major and nonmajor governmental funds as of June 30, 2019, were distributed as follows:

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Federal and State Grant: The City participates in a number of federal and state grant programs subject to financial and compliance audits by the grantors or their representatives. Audits of certain grant programs, including those for the year ended June 30, 2019, have yet to be conducted. The amount, if any, of expenditures that may be disallowed by the granting agencies cannot be determined at this time.

Management believes that such disallowances, if any, would not have a material effect on the financial statements.

Encumbrances: The City uses encumbrances to control expenditure commitments for the year.

Encumbrances represent commitments related to executor contracts not yet performed and purchase orders not yet filled. Commitments for such expenditure of monies are encumbered to reserve a portion of applicable appropriations. Encumbrances still open at year end are not accounted for as expenditures and liabilities, but as restricted, or assigned fund balance.

Capital Other
Housing Pubic Facilities Improvements Governmental
General Transportation Development Corporation Projects Funds Total Nonspendable:

Loans receivable 454,188$ -$ -$ -$ -$ -$ 454,188$ Subtotal 454,188 - - - - - 454,188 Restricted for:

Public access television 1,346,167 - - - - - 1,346,167 Debt service 13,982 - - 1,660,759 - - 1,674,741 PRSP Section 115 Trust 8,109,521 - - - - - 8,109,521 Storm drain system - - - - - 3,321,290 3,321,290 Parks and open space - - - - - 11,688,177 11,688,177 Environmental management - - - - - 418,837 418,837 Streets and road projects - 10,013,926 - - - 197,584 10,211,510 Housing programs - - 8,635,265 - - - 8,635,265 Subtotal 9,469,670 10,013,926 8,635,265 1,660,759 - 15,625,888 45,405,508 Committed for:

Economic uncertainty 19,000,000 - - - - - 19,000,000 Sustainability Reserve 123,397 - - - - - 123,397 Subtotal 19,123,397 - - - - - 19,123,397 Assigned to:

Encumbrances 1,979,202 - - - - - 1,979,202 Capital projects - - - - 33,009,760 202,186 33,211,946 Subtotal 1,979,202 - - - 33,009,760 202,186 35,191,148 Unassigned 27,896,128 - - - - - 27,896,128 Total 58,922,585$ 10,013,926$ 8,635,265$ 1,660,759$ 33,009,760$ 15,828,074$ 128,070,369$

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

61. NOTE 8 – COMMITMENTS AND CONTINGENCIES (Continued)

As of June 30, 2019, the City had the following encumbrances outstanding:

Governmental Funds:

General Fund $ 1,979,202
Transportation Special Revenue Fund 3,962,101
Housing Development Special Revenue Fund 23,196
Capital Improvements Projects Capital Projects Fund 4,135,552 Other Governmental Funds 134,377

Total Encumbrances $ 10,234,428

Lease Agreement with County of Santa Clara: The City has an agreement (commitment), expiring in 2019, to lease a building to the County of Santa Clara for the purpose of providing library service to the City's residents. The lease requires a minimum annual payment of $120,000 adjusted for Cupertino's portion of book circulation and increase of assessed valuation. This is an operating lease with a renewable option. At June 30, 2019, the cost and carrying value of the building which opened in October 2004, is $21,952,133 and $8,938,270 respectively, with $13,013,863 in accumulated depreciation.

Consulting Agreement for Sales Taxes: The City entered into agreements (commitments) with two companies to provide services consisting of the assessment and creation of new sales and use tax revenue sources for the City. The City agreed to pay the companies based on a sliding scale payment schedule dependent on the level of new sales tax revenue realized by the City as defined in the consulting agreements. These agreements qualify as tax abatements under the provisions of GASB Statement 77.

However, due to legal restrictions per the California Revenue and Taxation Code, Section 7056, additional disclosures cannot be provided.

Santa Clara County Vehicle Registration Fee (VRF): The City is required to report VRF revenues, expenditures and fund balances as of the year ended June 30, 2019:

VRF Balance as of July 1, 2018 $ -

VRF Revenue 370,106
VRF Interest -
VRF Expended 370,106

VRF Balance as of June 30, 2019 $ -

NOTE 9 – LIABILITIES UNDER SELF-INSURANCE AND RISK MANAGEMENT

General and Property Liability: The City is self-insured for the first $250,000 of general and property liability for each occurrence, and the excess (up to $10,000,000 for each occurrence and annual aggregate) is covered through the City's participation in the Association of Bay Area Governments Pooled Liability Assurance Network (ABAG PLAN). The risk pool consists of 30 agencies within the San Francisco Bay Area. The stated purpose of the ABAG PLAN is to provide certain levels of liability insurance coverage, claims management, risk management services, and legal defense to its participating members. ABAG PLAN is governed by a Board of Directors, which comprises officials appointed by each participating member. Premiums paid to ABAG are subject to possible refund based on the results of actuarial studies and approval by the Board of Directors. Complete financial statements for ABAG PLAN may be obtained from their offices at the following address: ABAG PLAN, Finance Department, P.O. Box 2050, Oakland, CA 94604. Premiums are revised each year based on the City's claims experience and risk exposure. For the year ended June 30, 2019, the City paid ABAG PLAN premiums of $482,346.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

62. NOTE 9 – LIABILITIES UNDER SELF-INSURANCE AND RISK MANAGEMENT (Continued)

Workers' Compensation Liability: The City belongs to the CSAC Excess Insurance Authority (EIA), a joint power authority which provides excess workers' compensation liability claims coverage above the City's self-insured retention of $500,000 per occurrence. Losses above the self-insured retention are pooled with excess reinsurance purchased to a $50,000,000 statutory limit. EIA was established in 1979 for the purpose of creating a risk management pool for all California public entities. EIA is governed by a Board of Directors consisting of representatives of its member public entities. Complete financial statements for ETA may be obtained from their offices at the following address: CSAC Excess Insurance Authority, Finance Department, EIA 75 Iron Point Circle, Suite 200, Folsom, CA 95630. For the year ended June 30, 2019, the City paid premiums of $126,079.

It is the City's practice to obtain biennial actuarial studies for the self-insured workers' compensation liability.

The claims liabilities included in the workers' compensation internal service fund is based on the results of actuarial studies and include amounts for claims incurred but not reported and loss adjustment expenses.

Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends, including frequency and amount of payouts, and other economic and social factors. Inflation of 2.5 percent, annual rate of return of two percent, claim severity increase at 2.5 percent were assumed. In the current year, management used actuarial estimates based on a 90 percent confidence level.

Settlements have not exceeded insurance coverage in the past three years.

Changes in the balances of workers' compensation and general claims liabilities during the years ended June 30 are as follows:

2019 2018

Claims liability, beginning of year $ 1,369,165 $ 1,682,651 Incurred claims and changes in estimate 419,279 (12,991) Claim payments and credits (235,167) (300,495)
Total claims liability, end of year 1,553,277 1,369,165 Less current portion (313,291) (262,157)

Non-current portion $ 1,239,986 $ 1,107,008

NOTE 10 – DEFINED BENEFIT PENSION PLAN

Plan Descriptions and Summary of Balances by Plan: The City has one defined benefit pension plan. The Miscellaneous Plan (Plan) is an Agent-Multiple Employer Plan. Benefit provisions under the Plan is established by State statute and City Ordinance. All qualified permanent and probationary employees are eligible to participate in the Plan for which they are an eligible member based on their employment position with the City.

The Plan is administered by the California Public Employees' Retirement System (CalPERS) which acts as a common investment and administrative agent for its participating member employers. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

63. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)

For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Miscellaneous Plan and additions to/deductions from the Plan's fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

Below is a summary of the deferred outflows of resources, net pension liabilities and deferred inflows of resources by Plan:

Deferred Outflows Net Pension Deferred Inflows
of Resources Liability of Resources

Miscellaneous $ 8,626,672 $ 40,879,589 $ 680,540

Benefits Provided: CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries.

Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. The Pension Reform Act of 2013 (PEPRA), Assembly Bill 340, is applicable to employees new to CalPERS and hired after December 31, 2012. The Plans' provisions and benefits in effect at June 30, 2019, are summarized as follows:

Hire date
Prior to On or after
January 1, 2013 January 1, 2013

Benefit formula 2.7% @ 55 2.0% @ 62
Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life
Minimum retirement age 50 52
Monthly benefits, as a % of eligible compensation 2% to 2.7% 1% to 2% Required employee contribution rates 8.00% 6.25%
Required employer contribution rates 23.54% 25.653%

Employees Covered: As of the June 30, 2017 actuarial valuation date (most current), the following employees were covered by the benefit terms of the Plan:

Inactive employees or beneficiaries currently receiving benefits 213 Inactive employees entitled to but not yet receiving benefits 138 Active employees 188

Total 539

Contributions: Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

64. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)

Net Pension Liability: The City's net pension liability for the Plan is measured as the total pension liability, less the pension plan's fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2018, using an annual actuarial valuation as of June 30, 2017 rolled forward to June 30, 2018 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below.

Actuarial Assumptions: The total pension liabilities in the June 30, 2016 actuarial valuations were determined using the following actuarial assumptions:

Valuation Date June 30, 2017
Measurement Date June 30, 2018
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions:

Discount Rate 7.15%
Inflation 2.75%
Payroll Growth 3.00%
Projected Salary Increase Varies by Entry Age and Service (1) Investment Rate of Return 7.5% (2)
Derived using CaIPERS' Membership
Mortality Data for all Funds (3)

(1) Depending on age, service and type of employment
(2) Net of pension plan investment expenses and administrative expenses, including inflation (3) The mortality table used was developed based on CaIPERS' specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the CaIPERS 2017 experience study report available on CaIPERS website.

All other actuarial assumptions used in the June 30, 2017 valuation were based on the results of a December 2017 actuarial experience study for the period 1997 to 2015, including updates to salary increase, mortality and retirement rates. Further details of the Experience Study can be found on the CaIPERS website under Forms and Publications.

Change of Assumptions: In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions from December 2017.

Discount Rate: The discount rate used to measure the total pension liability was 7.15 percent for the Plan.

To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CaIPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets.

Therefore, the current 7.15 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.15 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

65. NOTE 10 - DEFINED BENEFIT PENSION PLAN (Continued)

In determining the long-term expected rate of return, CaIPERS took into account both short-term and long- term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.

New Strategic Real Return Real Return
Allocation Years 1 - 10(a) Years 11+(b)
Asset Class
Global Equity 50.00% 4.80% 5.98%
Global Fixed Income 28.00% 1.00% 2.62%
Inflation Sensitive 0.00% 0.77% 1.81%
Private Equity 8.00% 6.30% 7.23%
Real Estate 13.00% 3.75% 4.93%
Liquidity 1.00% 0.00% (0.92%)

Total 100.00%

(a) An expected inflation of 2.00% used for this period. (b) An expected inflation of 2.92% used for this period.

The table above reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation.

These rates of return (presented as geometric means) are net of administrative expenses.

Changes in Net Pension Liability: The changes in the Net Pension Liability for the City's Miscellaneous Plan are as follows:

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

66. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)

Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following presents the net pension liability of the City, calculated using the discount rate for the Plan, as well as what the City's net pension liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate:

Miscellaneous

1% Decrease 6.15%
Net Pension Liability $ 58,849,297

Current Discount Rate 7.15%
Net Pension Liability $ 40,879,589

1% Increase 8.15%
Net Pension Liability $ 26,021,191

Pension Plan Fiduciary Net Position: Detailed information about the Plan's fiduciary net position is available in the separately issued CalPERS financial reports.

Miscellaneous Plan:

Total Pension
Liability
Plan Fiduciary
Net Position
Net Pension
Liability
Balance at June 30, 2017 127,947,594$ 86,803,192$ 41,144,402$ Changes in the year:

Service cost 3,058,629 - 3,058,629 Interest on the total pension liability 9,065,322 - 9,065,322 Change of Assumptions (847,606) - (847,606) Differences between actual and expected experience 1,184,340 - 1,184,340 Contribution - employer - 4,263,020 (4,263,020) Contribution - employee - 1,506,888 (1,506,888) Net investment income - 7,347,936 (7,347,936) Administrative expenses - (392,346) 392,346 Benefit payments, including refunds of employee
contributions (6,051,845) (6,051,845) -
Net changes 6,408,840 6,673,653 (264,813)
Balance at June 30, 2018 134,356,434$ 93,476,845$ 40,879,589$ Increase (Decrease)

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

67. NOTE 10 – DEFINED BENEFIT PENSION PLAN (Continued)

Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions: For the year ended June 30, 2019, the City recognized pension expense of $6,793,995. At June 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources

Pension contributions subsequent to measurement date $ 4,634,414 $ - Differences between actual and expected experience 909,262 75,107 Changes in assumptions 2,934,053 605,433
Net differences between projected and actual earnings
on plan investments 148,943 -

Total $ 8,626,672 $ 680,540

The $4,634,414 of contributions for the fiscal year ended June 30, 2019 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2020. Other amounts reported as deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Year Ended Annual
June 30 Amortization

2019 $ 3,240,759
2020 1,132,498
2021 (825,232)
2022 (236,307)

$ 3,311,718

NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB)

Plan Description: Permanent employees who retire under the City's CaIPERS retirement plan are, pursuant to their respective collective bargaining agreements, eligible to have their medical insurance premiums paid by the City. Retirees receive the amount necessary to pay the cost of his/her enrollment, including the enrollment of his/her family members, in a health benefit plan provided by CalPERS up to the maximum received by active employees in their respective bargaining unit.

The City contracts with CaIPERS for this insured-benefit plan established under the state Public Employees' Medical and Hospital Care Act (PEMHCA). The plan offers employees and retirees three CalPERS' self- funded options, setup as insurance risk pools, or offers various third-party insured health plans. The plan's medical benefits and premium rates are established by CalPERS and the insurance providers. The City contribution is established by City resolution. Retirees and active employees pay the difference between the premium rate and the City's contribution. Premiums and City contributions are based on the plan and coverage selected by actives and retirees, with the City's potential contribution ranging from zero to $1,605 per month per employee or retiree. The responsibility for benefit payments has transferred to the insurers and the City does not guarantee the benefits in the event of default by the insurers. A comprehensive annual financial report of CalPERS, inclusive of their benefit plans, is available at www.calpers.ca.gov.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

68. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)

The City participates in the Public Agency Retirement System (PARS) Public Agencies Post Retirement Health Care Plan Trust Program (PARS Trust), an agent-multiple employer irrevocable trust established to fund other postemployment benefits. The City Council adopted the PARS Public Agencies Post-Retirement Health Care Plan Trust, including the PARS Public Agencies Post-Retirement Health Care Plan, to fund medical insurance costs for its retired employees, effective February 17, 2010. The City Council appointed the City Treasurer, or his/her successor or his/her designee as the City’s plan administrator. The plan administrator is authorized to execute the PARS legal documents on behalf of the City and to take whatever additional actions necessary to maintain the City’s participation in the Program and to maintain compliance of any relevant regulation issued or as may be issued; therefore, authorizing him/her to take whatever additional actions are required to administer the City’s PARS Plan. The PARS Trust is approved by the Internal Revenue Code Section 115 and invests funds in equity, bond, and money market mutual funds.

Copies of PARS Trust annual financial report is available at the City's Finance Department. However, as the City is the plan administrator and has ultimate responsibility for the plan, the City considered the plan to be a single employer plan with PARS as the trust administrator only (with no special funding situation or nonemployer contributing entity). As such, in accordance with the requirements of GASB Statement 74, Financial Reporting for Post Employment Benefit Plans Other Than Pension Pans , the City has elected to present the PARS Trust as a fiduciary fund and include the required disclosures and required supplementary information in its annual financial statements.

An employee is eligible for lifetime medical benefits under the OPEB Plan, along with his/her spouse or declared domestic partner at the time of retirement, if all criteria listed below are met:

 The employee was hired or the City Council member was elected prior to August 1, 2004, and the employee has five or more full-time years of service and the City Council member has five or more years of elected service with the City of Cupertino; or  The employee was hired or the City Council member was elected on or after August 1, 2004, and the employee has ten or more full-time and/or elected years of CalPERS service, five years of which must be from the City of Cupertino; and
 The employee is eligible for retirement as defined under the CaIPERS retirement system; and the employee retires from the City of Cupertino.

In addition, the eligible employee's dependent children at the time of retirement who are under 23 years old are eligible for medical benefits. In addition to extending the eligibility of dependents from age 23 to age 26 in accordance with the recent healthcare reform act, effective July 1, 2010, employees that retire or resign from service with the City of Cupertino and who are not eligible for retiree medical benefits can continue on the City's medical and dental plans provided that they pay the premiums in full.

Plan membership: At January 1, 2019 (the latest information available), Plan membership consisted of the following:

Inactive plan members or beneficiaries currently receiving benefit payments 138 Inactive plan members entitled to but not yet receiving benefit payments - Active plan members 176

314

Contributions: OPEB Plan contributions are set by the adopted budget. The cost of the benefits provided by the OPEB Plan is currently being paid by the City on a fully pre-funded basis. Based on the actuarial valuation date of January 1, 2019, the annual required contribution rate is 7.41 percent of annual covered payroll. For the year ended June 30, 2019, the City paid $1,075,908 in healthcare premium payments. Plan members are not required to contribute to the plan.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

69. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)

Net OPEB Liability of the City: The components of the net OPEB liability (asset) of the City at June 30, 2019 (expressed in thousands) were as follows:

Total OPEB liability $ 28,073
Plan fiduciary net position 29,218

City's net OPEB asset $ (1,145)

Plan fiduciary net position as a percentage of the total OPEB liability 104.08%

Investment rate of return: The long-term expected rate of return on OPEB plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of investment expense and inflation) are developed for each major asset class.

These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the target asset allocation as of June 30, 2019 (see the discussion of the Plan’s investment policy) are summarized in the following table:

Long-Term Expected
Asset Class Real Rate of Return

Fixed income – core 3.13%
Fixed income – high yield 4.75%
Fixed income – inflation protected 3.03%
Fixed income – hedged 3.18%
Equities – domestic 7.30%
Equities – developed foreign 7.77%
Equities – emerging foreign 8.36%
Real estate 5.79%
Commodities 3.87%
Cash 2.61%

Investment policy: The Plan’s policy in regard to the allocation of invested assets is established and may be amended by the Plan’s Board by a majority vote of its members. It is the policy of the Plan Board to pursue an investment strategy that reduces risk through the prudent diversification of the portfolio across a broad selection of distinct asset classes. The Plan’s investment policy discourages the use of cash equivalents, except for liquidity purposes, and aims to refrain from dramatically shifting asset class allocations over short time spans. The following was the Board’s adopted asset allocation policy as of June 30, 2019:

Asset Class Target Allocation

Fixed income 29%
Equities 62%
Real estate 6%
Commodities 2%
Cash 1%

Total 100%

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

70. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)

Concentrations: The Plan did not have investments outside of mutual funds that comprise five percent or more of the Plan’s total fiduciary net position.

Rate of return: For the year ended June 30, 2019, the annual money-weighted rate of return on investments, net of investment expense, was 6.32 percent. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested.

Actuarial assumptions: The total OPEB liability was determined by an actuarial valuation as of January 1, 2019, using the previously listed actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified. Mortality rates were based on the CalPERS mortality assumptions.

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with long-term perspective of the calculations.

The other significant actuarial assumptions used to prepare the City's January 1, 2019 actuarial valuation include the following:

Valuation date: January 1, 2019
Measurement date: June 30, 2019
Actuarial Cost Method: Entry Age Normal
Amortization Method: Level percent of pay closed
Amortization Period: 10 year
Asset Valuation Method: Market value
Actuarial Assumptions:

Discount Rate 7.00%
Payroll Growth 3.00%
Ultimate Rate of Medical Inflation 4.50%
Mortality (1) CalPERS mortality assumptions
Health Care Trend The annual cost of healthcare is
expected to decrease from

7.0% in 2019 to 4.5% from 2076
and later.

(1) 2017 CalPERS Experience Study, Recipients with attained age of 50

Discount rate: The discount rate used to measure the total OPEB liability was 7.0 percent. The projection of cash flows used to determine the discount rate assumed that City contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

71. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)

Changes in the Net OPEB Liability: The changes in the City’s net OPEB liability (asset) are:

Net Increase (Decrease)
Total OPEB Plan Fiduciary Net OPEB
Liability Net Position Liability (Asset)

Balance at July 1, 2018 $ 28,471,000 $ 28,056,000 $ 415,000

Changes in the year
Service cost 865,000 - 865,000
Interest on the total OPEB liability 2,005,000 - 2,005,000 Change of assumpsions (37,000) - (37,000)
Differences between actual and
expected experience (1,808,000) - (1,808,000)
Contribution – employer - 1,423,000 (1,423,000)
Contribution – employee - - -
Net investment income - 1,259,000 (1,259,000)
Adminsitrative expenses - (97,000) 97,000
Benefit payments, including refunds of -
Employee contributions (1,423,000) (1,423,000) -
Net changes (398,000) 1,162,000 (1,560,000)

Balance at June 30, 2019 $ 28,073,000 $ 29,218,000 $ (1,145,000)

Sensitivity of the net OPEB liability (asset) to changes in the discount rate: The following presents the net OPEB asset of the City, as well as what the City’s net OPEB liability would be if it were calculated using a discount rate that is one-percentage-point lower (6.0 percent) or one-percentage-point higher (8.0 percent) than the current discount rate (expressed in thousands):

1% Current 1%
Decrease Discount Rate Increase

6.00% 7.00% 8.00%

City of Cupertino’s net OPEB liability
(asset) for the plan $ 2,374,000 $ (1,145,000) $ (4,063,000)

Sensitivity of the net OPEB liability (asset( to changes in the healthcare cost trend rates: The following presents the net OPEB asset of the City, as well as what the City’s net OPEB liability would be if it were calculated using healthcare cost trend rates that are one-percentage-point lower (decreasing to 3.5 percent) or one-percentage-point higher (increasing to 5.5 percent) than the current healthcare cost trend rates (expressed in thousands):

Current
1% Healthcare Cost 1%
Decrease Trend Rate Increase

City of Cupertino’s net OPEB liability
(asset) for the plan $ (4,175,000) $ (1,145,000) $ 2,527,000

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

(Continued)

72. NOTE 11 – OTHER POST EMPLOYMENT BENEFITS (OPEB) (Continued)

OPEB Expense and Deferred Inflows of Resources Related to OPEB: For the year ended June 30, 2019, the City recognized OPEB expense of $392,000 At June 30, 2019, the City reported deferred inflows of resources related to OPEB from the following sources:

Deferred Inflows
of Resources

Net difference between projected and actual earnings on investments $ 1,447,000 Differences between expected and actual experience 323,000 Changes in assumption 29,000

$ 1,799,000

Amounts reported as deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows:

Year Ended Deferred Inflows
June 30 of Resources

2020 $ 614,000
2021 614,000
2022 342,000
2023 229,000

Total $ 1,799,000

NOTE 12 — CONCENTRATION RISK

The City has an economic dependency on revenues generated directly or indirectly from one company. For the year ended June 30, 2019, more than 10 percent of the City General Fund's total revenues are derived from the company. The City's operations would be adversely impacted if there are any significant declines in taxes received from the company.

NOTE 13 – UPCOMING GASB PRONOUCEMENTS

In January 2017, the GASB issued Statement 84, Fiduciary Activities. The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. This Statement is effective for the City’s fiscal year ended June 30, 2020. Management has not determined what impact, if any, this statement will have on its financial statements.

CITY OF CUPERTINO, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
For the year ended June 30, 2019

73. NOTE 13 – UPCOMING GASB PRONOUCEMENTS (Continued)

In June 2017, the GASB issued Statement 87, Leases. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. This Statement is effective for the City’s fiscal year ended June 30, 2021. Management has not determined what impact, if any, this statement will have on its financial statements.

In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period. The objectives of this Statement are (1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred before the end of a construction period. This Statement establishes accounting requirements for interest cost incurred before the end of a construction period. This Statement is effective for the City’s fiscal year ended June 30, 2021. Management has not determined what impact, if any, this statement will have on its financial statements.

In August 2018, the GASB issued Statement No. 90, Majority Equity Interests—an amendment of GASB Statements No. 14 and No. 61 . The primary objectives of this Statement are to improve the consistency and comparability of reporting a government’s majority equity interest in a legally separate organization and to improve the relevance of financial statement information for certain component units. It defines a majority equity interest and specifies that a majority equity interest in a legally separate organization should be reported as an investment if a government’s holding of the equity interest meets the definition of an investment. This Statement also requires that a component unit in which a government has a 100 percent equity interest account for its assets, deferred outflows of resources, liabilities, and deferred inflows of resources at acquisition value at the date the government acquired a 100 percent equity interest in the component unit. This Statement is effective for the City’s fiscal year ended June 30, 2020. Management has not determined what impact, if any, this statement will have on its financial statements.

In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. The primary objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. This Statement is effective for the City’s fiscal year ended June 30, 2022. Management has not determined what impact, if any, this statement will have on its financial statements.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

CITY OF CUPERTINO, CALIFORNIA

SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY

AND RELATED RATIOS
For the year ended June 30, 2019

74. Measurement Date 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018 Total Pension Liability
Service Cost 2,504,228$ 2,444,939$ 2,525,314$ 2,895,549$ 3,058,629$ Interest 7,349,943 7,789,134 8,253,983 8,619,588 9,065,322 Changes of benefit terms - - - - - Differences between expected and actual experience - 372,917 696,347 (182,397) 1,184,340 Changes in assumptions - (1,883,633) - 7,125,558 (847,606) Benefit payments, including refunds of employee contributions (4,351,614) (4,637,005) (5,151,298) (5,346,890) (6,051,845) Net change in total pension liability 5,502,557 4,086,352 6,324,346 13,111,408 6,408,840 Total pension liability - beginning 98,922,931 104,425,488 108,511,840 114,836,186 127,947,594 Total pension liability - ending (a) 104,425,488$ 108,511,840$ 114,836,186$ 127,947,594$ 134,356,434$ Plan fiduciary net position
Contributions - employer 2,891,986$ 3,301,642$ 3,659,170$ 4,183,822$ 4,263,020$ Contributions - employee 1,061,884 1,149,894 1,169,921 1,236,052 1,506,888 Net investment income 11,379,985 1,724,204 466,704 8,749,288 7,347,936 Benefit payments, including refunds of employee contributions (4,351,614) (4,637,005) (5,151,298) (5,346,890) (6,051,845) Administrative expense - (87,780) (47,536) (115,304) (392,346) Net change in plan fiduciary net position 10,982,241 1,450,955 96,961 8,706,968 6,673,653 Plan fiduciary net position - beginning 65,566,067 76,548,308 77,999,263 78,096,224 86,803,192 Plan fiduciary net position - ending (b) 76,548,308$ 77,999,263$ 78,096,224$ 86,803,192$ 93,476,845$ Net pension liability - ending (a)-(b) 27,877,180$ 30,512,577$ 36,739,962$ 41,144,402$ 40,879,589$ Plan fiduciary net position as a percentage of the total pension liability 73.30% 71.88% 68.01% 67.84% 69.57% Covered payroll 13,080,327$ 13,504,966$ 14,336,969$ 15,595,136$ 16,809,349$ Net pension liability as percentage of covered payroll 213.12% 225.94% 256.26% 263.83% 243.20% Notes to Schedule:
* - Fiscal year 2015 was the 1st year of implementation, therefore only five years are shown.

Source: CalPERS Accounting Valuation
Agent Multiple Employer Defined Benefit Retirement Plan - Miscellaneous Plan Last 10 years*
Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after the actuarial valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes).

Changes in assumptions. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions from December 2017. In 2017, the accounting discount rate reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate.

CITY OF CUPERTINO, CALIFORNIA

SCHEDULE OF CONTRIBUTIONS - PENSION
For the year ended June 30, 2019

75. Agent Multiple Employer Defined Benefit Retirement Plan - Miscellaneous Plan Last 10 Years*

2015 2016 2017 2018 2019
Actuarially determined contribution 3,608,853$ 3,659,170$ 4,183,821$ 4,263,020$ 4,634,414$ Contributions in relation to the actuarially determined contributions (3,608,853) (3,659,170) (4,183,821) (4,263,020) (4,634,414) Contribution deficiency (excess) -$ -$ -$ -$ -$ Covered payroll 13,504,966$ 14,336,969$ 15,595,136$ 16,809,349$ 19,664,057$ Contributions as a percentage of covered payroll 26.72% 25.52% 26.83% 25.36% 23.57% Notes to Schedule
Valuation date: 6/30/2013 6/30/2014 6/30/2015 6/30/2016 6/30/2017 Methods and assumptions used to determine contribution rates:

Actuarial cost method Entry age
Amortization method Level percentage of payroll, closed Remaining amortization period 19 Years as of the Valuation Date Asset valuation method 15 Year Smoothed Market
Inflation 2.75%
Salary increases 3%
Investment rate of return
Retirement age
Mortality
* - Fiscal year 2015 was the 1st year of implementation, therefore only five years are shown.

Source: City of Cupertino's general ledger and CalPERS Actuarial Valuation Notes to Schedule:
* - Fiscal year 2015 was the 1st year of implementation, therefore only three years are shown.

Source: CalPERS Accounting Valuation

7.50% Net of Pension Plan
The probabilities of Retirement are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015.

The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and Post-retirement mortality rates include 20 years of projected mortality improvement using Scale BB published by the Society of Actuaries.

Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after the actuarial valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes).

Changes in assumptions. 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions from December 2017. In 2017, the accounting discount rate reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate.

CITY OF CUPERTINO, CALIFORNIA

SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY

AND RELATED RATIOS
For the year ended June 30, 2019

76. Single Employer Defined Benefit OPEB Plan
Last 10 years*
Expressed in thousands

6/30/2017 6/30/2018 6/30/2019
Total OPEB liability
Service cost 908$ 1,008$ 865$
Interest 1,781 1,876 2,005
Changes of benefit terms - - - Differences between expected and actual experience - - (1,808) Changes of assumptions - - (37) Benefit payments (1,333) (1,419) (1,423) Net change in total OPEB liability 1,356 1,465 (398) Total OPEB liability - beginning 25,650 27,006 28,471 Total OPEB liability - ending (a) 27,006$ 28,471$ 28,073$ Plan fiduciary net position
Contributions - employer 1,333 1,419 1,423 Net investment income 2,960 2,365 1,259 Benefit payments (1,333) (1,419) (1,423) Administrative expense (49) (54) (97) Net change in fiduciary net position 2,911 2,311 1,162 Plan fiduciary net position - beginning 22,834 25,745 28,056 Plan fiduciary net position - ending (b) 25,745$ 28,056$ 29,218$ Net OPEB liability (asset) - ending (a-b) 1,261$ 415$ (1,145)$ Plan fiduciary net position as a percentage of the total OPEB liability 95.33% 98.54% 104.08% Covered payroll 17,255$ 19,153$ 20,086$ Net OPEB liability (asset) as a percentage of covered payroll 7.31% 2.17% -5.70% Notes to schedule:
* - Fiscal year 2017 was the 1st year of implementation, therefore only three years are shown.

CITY OF CUPERTINO, CALIFORNIA

SCHEDULE OF CONTRIBUTIONS - OPEB
For the year ended June 30, 2019

77. Single Employer Defined OPEB Plan
Last 10 years*
Expressed in thousands

6/30/2017 6/30/2018 6/30/2019
Actuarially determined contribution 1,117$ 1,362$ 1,300$ Contributions in relation to the actuarially determined contributions 1,333 1,419 1,423 Contribution deficiency (excess) (216)$ (57)$ (123)$ Covered payroll 17,255$ 19,153$ 20,086$ Contributions as a percentage of covered payroll 7.73% 7.41% 7.08% Notes to schedule:
* - Fiscal year 2017 was the 1st year of implementation, therefore only three years are shown.

Valuation Date 1/1/2019
Methods and assumptions used to determine contribution rates:

Actuarial cost method Entry age
Amortization method Level percentage of pay, closed
Remaining amortization period 12 years as of the valuation date Asset valuation method Fair value of assets
Discount rate 7.00%
Amortization growth rate 3.00%
Ultimate rate of medical inflation 4.50%
Salary increases
Mortality CalPERS mortality assumptions

3.00% plus merit component based on years of
service

CITY OF CUPERTINO, CALIFORNIA

SCHEDULE OF INVESTMENT RETURNS - OPEB
For the year ended June 30, 2019

78. Single Employer Defined OPEB Plan
Last 10 years*

June 30 June 30 June 30
2017 2018 2019

Annual money-weighted return,
net of investment expense 10.74% 8.31% 6.32%

Notes to schedule
* - Fiscal year 2017 was the 1 st year of implementation, therefore only three years are shown.

MAJOR GOVERNMENTAL FUNDS OTHER

THAN THE GENERAL FUND AND SPECIAL

REVENUE FUNDS

79. This section is provided for the presentation of budget-to-actual statements for the Public Facilities Corporation Debt Service Fund. Although the fund is considered to be a major government fund, budget- to-actual information in the basic financial statements is limited to the General Fund and major Special Revenue Funds. All other major governmental fund schedules with such information are therefore included as Supplemental Information. The Capital Projects Funds are budgeted on a major project length basis and therefore not comparable on an annual basis.

CITY OF CUPERTINO, CALIFORNIA

PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES

BUDGET AND ACTUAL
For the year ended June 30, 2019

80. Variance
Final Positive
Budget Actual (Negative)
Revenues
Use of money and property -$ 75,272$ 75,272$ Total revenues - 75,272 75,272
Expenditures
Administration - 1,500 (1,500) Debt service:

Principal 3,169,438 2,220,000 949,438
Interest and fiscal charges - 949,438 (949,438) Total expenditures 3,169,438 3,170,938 (1,500)
Excess (deficiency) of revenues
over expenditures (3,169,438) (3,095,666) 73,772
Other financing sources (uses)
Transfers in 3,169,438 3,169,438 -
Total other financing sources (uses) 3,169,438 3,169,438 - Net change in fund balance -$ 73,772 73,772$ Beginning fund balance 1,586,987
Ending fund balance 1,660,759$

NON-MAJOR GOVERNMENTAL FUNDS

81. All funds not considered as major funds on the Fund Financial Statements are consolidated in one column entitled "Other Governmental Funds." These non-major funds are identified and included in this supplementary section and includes the City's Special Revenue Funds and Capital Project Funds.

The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes.

Storm Drain Improvement — Accounts for the construction and maintenance of storm drain facilities including drainage and sanitary sewer facilities. Revenues were collected from developers as a result of connections to the storm drainage sewer system.

Park Dedication — Accounts for the activity granted by the business and professions code of the State of California in accordance with the open space and conservation element of the City's General Plan. Revenues of this fund are restricted for the acquisition, improvement, expansion and implementation of the City's parks and recreation facilities.

Environmental Management / Clean Creeks — Accounts for all activities related to operating the non-point source pollution program. A parcel tax provides revenues.

Traffic Impact – Accounts for development impact fees and related that ensure that new development and redevelopment projects pay their “fair share” to mitigate traffic impacts.

Capital Projects Funds account for the financial resources committed to the construction or improvement of major facilities.

Stevens Creek Corridor Park Capital Projects Fund — Accounts for the design and construction of the Stevens Creek Corridor Park projects.

CITY OF CUPERTINO, CALIFORNIA

NON-MAJOR GOVERNMENTAL FUNDS

COMBINING BALANCE SHEET
June 30, 2019

82. Total
Storm Environmental Nonmajor
Drain Park Management/ Traffic Stevens Creek Governmental Improvement Dedication Clean Creeks Impact Corridor Park Funds Assets
Cash and investments 3,321,290$ 11,692,350$ 419,216$ 197,584$ 203,066$ 15,833,506$ Accounts receivable - - 1,793 - - 1,793 Total assets 3,321,290$ 11,692,350$ 421,009$ 197,584$ 203,066$ 15,835,299$ Liabilities
Accounts payable and
accruals -$ 4,173$ 2,172$ -$ 880$ 7,225$ Total liabilities - 4,173 2,172 - 880 7,225 Fund balances
Restricted 3,321,290 11,688,177 418,837 197,584 - 15,625,888 Assigned - - - - 202,186 202,186 Total fund balances 3,321,290 11,688,177 418,837 197,584 202,186 15,828,074 Total liabilities and
fund balances 3,321,290$ 11,692,350$ 421,009$ 197,584$ 203,066$ 15,835,299$ Fund
Capital Projects
Special Revenue Funds

CITY OF CUPERTINO, CALIFORNIA

NON-MAJOR GOVERNMENTAL FUNDS

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES
For the year ended June 30, 2019

83. Fund
Total
Storm Environmental Nonmajor
Drain Park Management/ Traffic Stevens Creek Governmental Improvement Dedication Clean Creeks Impact Corridor Park Funds Revenues
Taxes 371,992$ 1,108,500$ -$ -$ -$ 1,480,492$ Use of money and property 81,039 287,688 10,600 1,374 1,820 382,521 Charges for services - 10,086 369,014 196,210 - 575,310 Fines and forfeitures - - 22,541 - - 22,541 Total revenues 453,031 1,406,274 402,155 197,584 1,820 2,460,864 Expenditures
Current:

Public works - - 658,847 - - 658,847 Capital outlay 40,563 17,881 - - 26,227 84,671 Total expenditures 40,563 17,881 658,847 - 26,227 743,518 Excess of revenues over
(under) expenditures 412,468 1,388,393 (256,692) 197,584 (24,407) 1,717,346 Other finances sources (uses)
Transfers in 1,100,000 575,000 436,000 - - 2,111,000 Transfers out - (135,000) - - - (135,000) Total other financing
sources (uses) 1,100,000 440,000 436,000 - - 1,976,000 Net change in fund balances 1,512,468 1,828,393 179,308 197,584 (24,407) 3,693,346 Beginning fund balances 1,808,822 9,859,784 239,529 - 226,593 12,134,728 Ending fund balances 3,321,290$ 11,688,177$ 418,837$ 197,584$ 202,186$ 15,828,074$ Special Revenue Funds
Capital Projects

CITY OF CUPERTINO, CALIFORNIA

NON-MAJOR GOVERNMENTAL FUNDS

COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2019

(Continued)

84. Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes -$ -$ 371,992$ 371,992$ Use of money and property - - 81,039 81,039 Charges for services - - - - Fines for forfeitures - - - - Other revenue - - - - Total revenues - - 453,031 453,031 Expenditures
Current:

Public works - - - - Capital outlay 1,500,000 2,181,407 40,563 2,140,844 Total expenditures 1,500,000 2,181,407 40,563 2,140,844 Excess (deficiency) of revenues
over expenditures (1,500,000) (2,181,407) 412,468 2,593,875 Other financing sources (uses)
Transfers in 1,100,000 1,100,000 1,100,000 -
Transfers (out) - - - - Total other financing sources (uses) 1,100,000 1,100,000 1,100,000 - Net change in fund balance (400,000)$ (1,081,407)$ 1,512,468 2,593,875$ Beginning fund balance 1,808,822
Ending fund balance 3,321,290$
Storm Drain Improvement
Special Revenue Funds

CITY OF CUPERTINO, CALIFORNIA

NON-MAJOR GOVERNMENTAL FUNDS

COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2019

(Continued)

85. Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes -$ -$ 1,108,500$ 1,108,500$ Use of money and property - - 287,688 287,688 Charges for services - - 10,086 10,086 Fines for forfeitures - - - - Other revenue - - - - Total revenues - - 1,406,274 1,406,274 Expenditures
Current:

Public works - - - - Capital outlay 1,625,000 1,464,425 17,881 1,446,544 Total expenditures 1,625,000 1,464,425 17,881 1,446,544 Excess (deficiency) of revenues
over expenditures (1,625,000) (1,464,425) 1,388,393 2,852,818 Other financing sources (uses)
Transfers in 575,000 575,000 575,000 - Transfers (out) 10,000 135,000 (135,000) - Total other financing sources (uses) 585,000 710,000 440,000 - Net change in fund balance (1,040,000)$ (754,425)$ 1,828,393 2,852,818$ Beginning fund balance 9,859,784
Ending fund balance 11,688,177$
Park Dedication
Special Revenue Funds

CITY OF CUPERTINO, CALIFORNIA

NON-MAJOR GOVERNMENTAL FUNDS

COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES – BUDGET AND ACTUAL
For the year ended June 30, 2019

86. Variance
Original Final Positive
Budget Budget Actual (Negative)
Revenues
Taxes -$ -$ -$ -$ Use of money and property 900 900 10,600 9,700 Charges for services 370,000 370,000 369,014 (986) Fines for forfeitures 9,000 9,000 22,541 13,541 Other revenue - - - - Total revenues 379,900 379,900 402,155 22,255 Expenditures
Current:

Public works 720,785 658,847 658,847 - Capital outlay - - - - Total expenditures 720,785 658,847 658,847 - Excess (deficiency) of revenues
over expenditures (340,885) (278,947) (256,692) 22,255 Other financing sources (uses)
Transfers in 436,000 436,000 436,000 - Total other financing sources (uses) 436,000 436,000 436,000 - Net change in fund balance 95,115$ 157,053$ 179,308 22,255$ Beginning fund balance 239,529
Ending fund balance 418,837$
Environmental Management/Clean Creeks
Special Revenue Funds

NON-MAJOR ENTERPRISE FUND

87. Proprietary funds account for City operations financed and operated in a manner similar to a private business enterprise. The intent of the City is that the cost of providing goods and services be financed primarily through user charges.

The City has identified the fund below as a nonmajor proprietary fund for fiscal 2018-19.

Blackberry Farm Fund: This fund accounts for activities related to operating the City-owned golf course.

CITY OF CUPERTINO, CALIFORNIA

NON-MAJOR ENTERPRISE FUND

COMBINING STATEMENT OF NET POSITION
For the year ended June 30, 2019

88. Blackberry
Farm
ASSETS
Current assets
Cash and cash investments (Note 2) 231,703$
Accounts receivable -
Total current assets 231,703
Noncurrent assets
Net OPEB asset (Note 11) 4,471
Capital assets (Note 5):

Depreciable, net of
accumulated depreciation 32,572
Total non current assets 37,043
Total assets 268,746

DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10) 54,717
Total deferred outflows of resources 54,717

LIABILITIES
Current liabilities
Accounts payable and accruals 12,675
Compensated absences (Note 1) 7,599
Unearned revenue 16,162
Total current liabilities 36,436
Noncurrent liabilities
Compensated absences (Note 1) 42,271
Net pension liability (Note 10) 249,848
Total noncurrent liabilities 292,119
Total liabilities 328,555

DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10) 4,457
Related to OPEB (Note 11) 6,742
Total deferred inflows of resources 11,199
NET POSITION (Note 7)
Net investment in capital assets 32,572
Unrestricted (48,863)
Total Net Position (16,291)$

CITY OF CUPERTINO, CALIFORNIA

NON-MAJOR ENTERPRISE FUND

COMBINING STATEMENT OF REVENUES, EXPENSES AND

CHANGES IN NET POSITION
For the year ended June 30, 2019

89. Blackberry
Farm
Operating revenues
Charges for services 288,126$
Other 28,489
Total operating revenue 316,615
Operating expenses
Salaries and benefits 201,744
Materials and supplies 167,273
Contractual services 258,580
Depreciation (Note 5) 17,872
Total operating expenses 645,469
Operating income (loss) (328,854)
Nonoperating revenues
Investment income 7,875
Total nonoperating revenues 7,875
Income (loss) before transfers (320,979)
Transfers in (Note 4) 75,000
Changes in net position (245,979)
Net position - beginning of year 229,688
Net position - end of year (16,291)$

CITY OF CUPERTINO, CALIFORNIA

NON-MAJOR ENTERPRISE FUND

COMBINING STATEMENT CASH FLOWS
For the year ended June 30, 2019

90. Blackberry
Farm
Cash flows from operating activities
Cash received from customers 332,777$
Cash payments to suppliers for
goods and services (465,018)
Cash payments to employees for salaries and benefits (197,342) Net cash provided (used) by operating activities (329,583) Cash flows from noncapital financing activities
Transfers in 75,000
Cash flows from noncapital financing activities 75,000
Cash Flows from Investing Activities
Interest received 7,875
Cash flows from investing activities 7,875
Net cash flows (246,708)
Cash and investments at beginning of year 478,411
Cash and investments at end of year 231,703$
Reconciliation of operating income (loss) to
to net cash provided by operating activities:

Operating income (loss) (328,854)$
Adjustments to reconcile operating income to
net cash provided by operating activities:

Depreciation 17,872
Change in assets, deferred outflows of resources, liabilities, and deferred inflows of resources
Due to retirement system 10,074
Due to OPEB system (3,966)
Accounts payable and accruals (39,165)
Unearned revenue 16,162
Compensated absences (1,706)
Net cash provided (used) by operating activities (329,583)$

INTERNAL SERVICE FUNDS

91. Internal Service Funds are used to finance and account for special activities and services provided by one department or program to other departments of the City on a cost reimbursement basis.

The concept of major funds does not extend to internal service funds because they do not do business with outside parties. For the Statement of Activities, the net revenues or expenses of each internal service fund are eliminated by netting them against the operations of the City departments that generated them. The remaining balance sheet items are consolidated with these same funds in the Statement of Net Position.

However, internal service funds are still presented separately in the Fund financial statements.

Information Technology - Accounts for the activities related to the maintenance and replacement of the City's technology infrastructure.

Workers' Compensation - Accounts for the activities in support of the self-insured workers' compensation program.

Equipment Revolving - Accounts for the activities related to the maintenance and replacement of the City's vehicle fleet and other equipment.

Compensated Absences and Long-Term Disability - Accounts for accrued leave payouts and the City's long term disability insurance program.

Retiree Medical - Accounts for funds set-aside for other post-employment retirement benefits.

CITY OF CUPERTINO, CALIFORNIA

INTERNAL SERVICE FUNDS

COMBINING STATEMENT OF NET POSITION
For the year ended June 30, 2019

92. Compensated
Absences and
Information Workers' Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total ASSETS
Current assets:

Cash and investments 3,297,294$ 3,829,847$ (3,875)$ 400,531$ 32,672$ 7,556,469$ Total current assets 3,297,294 3,829,847 (3,875) 400,531 32,672 7,556,469 Noncurrent assets:

Net OPEB asset (Note 11) 62,565 520 15,888 - - 78,973 Capital assets (Note 5):

Nondepreciable 10,045 - - - - 10,045
Capital assets, depreciable net
of accumulated depreciation 1,061,980 - 2,611,169 - - 3,673,149 Total noncurrent assets 1,134,590 520 2,627,057 - - 3,762,167 Total assets 4,431,884 3,830,367 2,623,182 400,531 32,672 11,318,636

DEFERRED OUTFLOWS OF RESOURCES
Related to pension (Note 10) 373,555 13,021 119,228 - - 505,804 Total deferred outflows of resources 373,555 13,021 119,228 - - 505,804

LIABILITIES
Current liabilities
Accounts payable and accruals 205,884 - 29,818 - - 235,702 Accrued payroll and benefits - - 72 - - 72
Due to other funds - - 410,544 - - 410,544
Compensated absences 19,037 759 2,474 - - 22,270 Claims payable - 313,291 - - - 313,291
Total current liabilities 224,921 314,050 442,908 - - 981,879 Noncurrent liabilities
Compensated absences 156,104 6,222 20,285 - - 182,611 Claims payable - 1,239,986 - - - 1,239,986
Net pension liability (Note 10) 1,821,267 57,874 541,559 - - 2,420,700 Total noncurrent liabilities 1,977,371 1,304,082 561,844 - - 3,843,297 Total liabilities 2,202,292 1,618,132 1,004,752 - - 4,825,176

DEFERRED INFLOWS OF RESOURCES
Related to pension (Note 10) 33,647 844 8,071 - - 42,562 Related to OPEB (Note 11) 76,593 1,471 28,461 - - 106,525 Total deferred inflows of resources 110,240 2,315 36,532 - - 149,087

NET POSITION
Net investment in capital assets 1,061,980 - 2,611,169 - - 3,673,149 Unrestricted 1,430,927 2,222,941 (910,043) 400,531 32,672 3,177,028 Total net position 2,492,907$ 2,222,941$ 1,701,126$ 400,531$ 32,672$ 6,850,177$

CITY OF CUPERTINO, CALIFORNIA

INTERNAL SERVICE FUNDS

COMBINING STATEMENT REVENUES, EXPENSES AND

CHANGES IN NET POSITION
For the year ended June 30, 2019

93. Compensated
Absences and
Information Workers' Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total Operating revenues
Charges for services 3,753,928$ 498,287$ 1,056,968$ 163,057$ -$ 5,472,240$ Total operating revenues 3,753,928 498,287 1,056,968 163,057 - 5,472,240 Operating expenses
Salaries and related expenses 1,551,595 28,183 328,116 - 1,075,908 2,983,802 Materials and supplies 1,494,401 16,896 409,860 4,388 5,745 1,931,290 Contractual services 203,084 2 82,733 - - 285,819 Insurance claims and premiums - 235,167 - 605,260 - 840,427 Depreciation 246,932 - 650,752 - - 897,684
Total operating expenses 3,496,012 280,248 1,471,461 609,648 1,081,653 6,939,022 Operating income (loss) 257,916 218,039 (414,493) (446,591) (1,081,653) (1,466,782) Nonoperating revenue (expenses)
Interest income 84,018 94,435 113 13,771 8,130 200,467 Total nonoperating
revenue (expenses) 84,018 94,435 113 13,771 8,130 200,467 Income (loss) before transfers 341,934 312,474 (414,380) (432,820) (1,073,523) (1,266,315) Transfers in - - - 447,000 1,131,474 1,578,474 Change in net position 341,934 312,474 (414,380) 14,180 57,951 312,159 Beginning net position 2,150,973 1,910,467 2,115,506 386,351 (25,279) 6,538,018 Ending net position 2,492,907$ 2,222,941$ 1,701,126$ 400,531$ 32,672$ 6,850,177$

CITY OF CUPERTINO, CALIFORNIA

INTERNAL SERVICE FUNDS

COMBINING STATEMENT OF CASH FLOWS
For the year ended June 30, 2019

94. Compensated
Absences and
Information Workers' Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total Cash flows from operating activities
Cash received from customers 3,753,928$ 498,287$ 1,056,968$ 163,057$ -$ 5,472,240$ Cash payments to suppliers for
goods and services (1,633,451) (16,911) (486,979) (4,388) (5,745) (2,147,474) Cash payments to employees (1,457,372) (25,935) (317,861) - (1,075,908) (2,877,076) Cash payment for judgment
and claims - (51,055) - (605,260) - (656,315) Net cash from operating activities 663,105 404,386 252,128 (446,591) (1,081,653) (208,625) Cash flows from noncapital
financing activities
Transfers in - - 159,549 447,000 1,106,195 1,712,744 Net cash from noncapital
financing activities - - 159,549 447,000 1,106,195 1,712,744 Cash flows from capital and related
financing activities
Acquisition of capital assets (625,511) - (415,665) - - (1,041,176) Net cash from capital and related
financing activities (625,511) - (415,665) - - (1,041,176) Cash flows from investing activities
Interest received 84,018 94,435 113 13,771 8,130 200,467 Net cash flows from
investing activities 84,018 94,435 113 13,771 8,130 200,467 Net cash flows 121,612 498,821 (3,875) 14,180 32,672 663,410 Cash and investments beginning of year 3,175,682 3,331,026 - 386,351 - 6,893,059 Cash and investments end of year 3,297,294$ 3,829,847$ (3,875)$ 400,531$ 32,672$ 7,556,469$

CITY OF CUPERTINO, CALIFORNIA

INTERNAL SERVICE FUNDS

COMBINING STATEMENT OF CASH FLOWS
For the year ended June 30, 2019

95. Compensated
Absences and
Information Workers' Equipment Long-Term Retiree
Technology Compensation Revolving Disability Medical Total Reconciliation of operating income (loss)
to net cash flows from operating activities
Operating income (loss) 257,916$ 218,039$ (414,493)$ (446,591)$ (1,081,653)$ (1,466,782)$ Adjustments to reconcile operating
income (loss) to net cash flows
from operating activities
Depreciation 246,932 - 650,752 - - 897,684 Change in assets, deferred outflows of resources,
liabilities and deferred inflows of resources
Due to retirement system 106,283 2,120 23,185 - - 131,588 Due to OPEB system (52,062) (596) (14,972) - - (67,630) Accounts payable and accruals 64,034 (13) 5,614 - - 69,635 Compensated absences 40,002 724 2,042 - - 42,768 Claims payable - 184,112 - - - 184,112 Cash flows from operating activities 663,105$ 404,386$ 252,128$ (446,591)$ (1,081,653)$ (208,625)$

96. STATISTICAL SECTION

This part of the City’s Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health. In contrast to the financial section, the statistical section information is not subject to independent audit.

Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial performance and wellbeing have changed over time:

1. Net Position/Assets by Component

2. Changes in Net Position/Assets

3. Fund Balances of Governmental Funds

4. Changes in Fund Balance of Governmental Funds

Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant own-source revenue, property tax.

1. Assessed and Estimated Actual Value of Taxable Property

2. Direct and Overlapping Property Tax Rates

3. Principal Property Taxpayers

4. Property Tax Levies and Collections

Debt Capacity
These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future:

1. Ratios of Outstanding Debt by Type

2. Direct and Overlapping Bonded Debt

3. Legal Debt Margin Information

4. Ratio of General Bonded Debt Outstanding

Demographic and Economic Information
These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place:

1. Demographic and Economic Statistics

2. 2018 Employer Ranking

Operating Information
These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs:

1. Full-Time Equivalent Employees by Function/Program

2. Operating Indicators by Function/Program

3. Capital Assets Statistics by Function/Program

Sources
Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Governmental Activities
Net investment in capital assets 120,405,290$ 120,724,205$ 117,440,257$ 116,343,918$ 122,081,223$ 131,425,677$ 148,168,074$ 153,239,534$ 167,606,366$ 170,973,897$ Restricted 8,692,175 7,721,962 7,572,865 8,351,118 24,232,367 38,327,705 34,861,807 34,991,692 32,073,195 45,405,508 Unrestricted 31,087,861 33,185,903 38,117,361 47,558,701 63,150,548 51,003,950 51,164,063 59,385,309 50,457,871 51,190,017 Total governmental activities net position/assets 160,185,326 161,632,070 163,130,483 172,253,737 209,464,138 220,757,332 234,193,944 247,616,535 250,137,432 267,569,422 Business-Type Activities
Net investment in capital assets 788,213 777,521 824,687 762,013 1,110,414 2,079,561 1,708,183 1,972,169 1,597,700 1,318,744 Unrestricted 9,063,616 9,779,087 10,057,331 10,865,479 10,292,210 6,604,578 7,375,444 9,092,584 8,051,015 6,737,758 Total business-type activities net position/assets 9,851,829 10,556,608 10,882,018 11,627,492 11,402,624 8,684,139 9,083,627 11,064,753 9,648,715 8,056,502 Primary Government
Net investment in capital assets 121,193,503 121,501,726 118,264,944 117,105,931 123,191,637 133,505,238 149,876,257 155,211,703 169,204,066 172,292,641 Restricted 8,692,175 7,721,962 7,572,865 8,351,118 24,232,367 38,327,705 34,861,807 34,991,692 32,073,195 45,405,508 Unrestricted 40,151,477 42,964,990 48,174,692 58,424,180 73,442,758 57,608,528 58,539,507 68,477,893 58,508,886 57,927,775 (1), (2) 170,037,155$ 172,188,678$ 174,012,501$ 183,881,229$ 220,866,762$ 229,441,471$ 243,277,571$ 258,681,288$ 259,786,147$ 275,625,924$ (1) Represents net assets thru June 30, 2012 and net position after that. (2) Noted that restatements due to prior period adjustments and changes in accounting principles are not reflected in the prior year balances.

Fiscal Year Ended June 30

CITY OF CUPERTINO
Net Positions/Assets by Component
Last Ten Fiscal Years
(Accrual basis of accounting)
(Unaudited)

97. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Expenses
Governmental Activities:

Administration 1,911,665$ 1,860,451$ 1,837,072$ 2,367,255$ 4,529,539$ 3,286,919$ 3,710,388$ 2,873,744$ 5,612,733$ 6,849,046$ Law enforcement 8,385,476 8,434,885 8,776,633 9,274,536 10,062,192 10,705,328 11,316,271 12,528,328 12,674,042 13,381,113 Public and environmental affairs 1,653,034 1,625,876 1,743,151 1,595,982 512,895 649,442 575,260 1,884,165 3,244,846 3,210,343 Administrative services 4,080,134 3,993,654 4,309,503 4,171,440 2,662,008 4,300,336 2,994,611 5,898,479 4,415,647 4,290,818 Recreation services 4,444,536 4,528,968 4,577,243 4,473,861 4,866,974 5,365,282 5,758,194 10,651,557 9,352,551 7,389,915 Community development 4,351,975 5,961,774 4,922,237 4,676,273 9,108,949 5,976,797 6,259,734 13,775,591 16,789,351 10,470,973 Public works 19,320,151 20,224,662 20,387,508 22,149,063 21,143,331 27,893,361 31,313,396 32,491,244 28,995,382 31,870,165 Interest on long-term debt 2,076,264 2,032,464 1,837,655 1,256,922 1,130,428 1,120,138 1,077,538 1,035,738 993,038 949,438 Total governmental activities expense 46,223,235 48,662,734 48,391,002 49,965,332 54,016,316 59,297,603 63,005,392 81,138,846 82,077,590 78,411,811 Business-Type Activities:

Resources recovery 2,018,147 1,801,599 1,566,229 1,764,993 2,159,047 2,548,461 2,997,200 2,991,177 2,594,511 1,735,885 Blackberry farm 457,169 457,065 460,698 463,336 571,000 547,185 576,177 597,406 656,112 645,469 Cupertino sports center 1,478,143 1,716,741 1,897,611 2,011,483 2,221,703 2,269,420 2,299,210 2,159,243 2,633,748 3,036,037 Recreation programs 1,854,648 1,753,156 1,985,618 2,025,416 2,730,765 2,342,457 3,136,011 2,351,501 3,232,593 2,923,336 Total business-type activities expense 5,808,107 5,728,561 5,910,156 6,265,228 7,682,515 7,707,523 9,008,598 8,099,327 9,116,964 8,340,727 Total primary government expense 52,031,342 54,391,295 54,301,158 56,230,560 61,698,831 67,005,126 72,013,990 89,238,173 91,194,554 86,752,538 Program Revenues
Governmental Activities:

Charges for services:

Administration 21,873 15,801 6,454 5,676 1,087,393 322,534 369,069 3,992,716 5,062,988 1,319,395 Law enforcement 811,676 797,757 696,498 637,595 725,631 590,378 664,483 603,194 732,544 889,923 Public and environmental affairs - - - - - 41,352 41,352 - - - Administrative services - - - - - 481,616 359,148 3,565,627 2,635,885 3,113,731 Recreation services 930,773 1,020,159 1,166,323 970,292 955,081 1,798,134 1,421,185 2,016,159 1,589,134 1,563,262 Community development 3,310,355 4,149,620 4,919,216 6,765,564 6,649,292 8,511,745 10,534,457 10,902,822 8,598,935 7,470,690 Public works 556,636 549,065 503,225 593,501 7,916,897 2,869,357 6,358,870 6,873,487 4,720,646 4,504,104 Operating grants and contributions 2,042,557 2,351,287 2,508,917 2,752,493 10,000,131 6,002,617 1,851,282 2,313,632 4,819,696 2,557,470 Capital grants and contributions 5,511,359 1,972,951 780,761 719,880 569,159 4,022,190 362,491 245,288 271,587 1,082,243 Total governmental activities program revenue 13,185,229 10,856,640 10,581,394 12,445,001 27,903,584 24,639,923 21,962,337 30,512,925 28,431,415 22,500,818 Business-Type Activities:

Charges for services:

Resources recovery 2,104,299 1,931,076 1,727,783 1,882,517 2,074,251 2,591,276 2,664,888 2,792,190 2,559,862 1,750,279 Blackberry farm 568,770 447,797 411,056 386,753 302,472 388,091 334,529 325,224 345,667 316,615 Cupertino sports center 1,578,330 1,722,700 1,965,684 2,150,139 2,188,127 2,152,498 2,224,146 2,238,023 2,403,665 2,349,468 Recreation programs 2,249,191 2,260,296 2,325,705 2,409,720 2,480,209 2,532,800 2,466,336 2,778,588 2,516,678 1,986,781 Operating grants and contributions 6,895 - - - - - - - - - Total business-type activities program revenue 6,507,485 6,361,869 6,430,228 6,829,129 7,045,059 7,664,665 7,689,899 8,134,025 7,825,872 6,403,143 Total primary government program revenue 19,692,714 17,218,509 17,011,622 19,274,130 34,948,643 32,304,588 29,652,236 38,646,950 36,257,287 28,903,961 (continued)
Fiscal Year Ended June 30

CITY OF CUPERTINO
Change in Net Positions/Assets
Last Ten Fiscal Years
(Accrual basis of accounting)
(Unaudited)

98. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Net (Expense) Revenue:

Governmental activities (33,038,006)$ (37,806,094)$ (37,809,608)$ (37,520,331)$ (26,112,732)$ (34,657,680)$ (41,043,055)$ (50,625,921)$ (53,646,175)$ (55,910,993)$ Business-Type activities 699,378 633,308 520,072 563,901 (637,456) (42,858) (1,318,699) 34,698 (1,291,092) (1,937,584) Total primary government net expense (32,338,628) (37,172,786) (37,289,536) (36,956,430) (26,750,188) (34,700,538) (42,361,754) (50,591,223) (54,937,267) (57,848,577) General Revenues and Transfers
Governmental Activities:

Taxes:

Property taxes 7,488,701 7,296,970 7,479,132 8,793,110 9,169,183 - 11,864,027 13,251,840 14,881,533 17,082,005 Property taxes in lieu of motor vehicle fee 4,420,912 4,404,795 4,487,412 4,772,355 5,289,476 - 6,330,436 6,967,237 7,552,272 8,219,090 Incremental property tax 1,322,925 1,251,777 202,793 - - - - - - - Sales tax 9,930,530 14,539,243 17,326 18,721,193 19,794,036 - 21,350,056 26,932,012 26,164,531 24,901,779 Transient occupancy tax 2,142,137 2,536,501 3,112,934 3,768,504 4,590,156 - 5,852,244 6,023,681 6,810,718 8,901,337 Utility user tax 3,271,452 3,227,942 3,264,896 2,994,526 3,098,639 - 3,370,830 3,082,407 3,146,398 3,089,922 Franchise tax 2,597,930 2,841,344 2,808,136 2,848,950 2,775,892 - 3,478,024 3,409,572 3,563,820 3,445,253 Other taxes 1,211,899 1,491,316 1,377,211 4,561,219 18,791,559 - 2,818,019 3,258,118 1,943,652 3,299,587 Intergovernmental (1) 166,440 259,289 29,064 30,256 25,294 - 24,111 26,118 31,013 28,844 Investment earnings 295,059 259,217 61,096 176,782 133,243 40,751 807,287 694,730 916,638 3,258,550 Miscellaneous 119,393 1,144,429 82,684 126,690 57,005 (2) 219,053 2,004,906 1,834,492 1,187,741 Gain on sale of capital assets - - - - - 23,715,897 580 - 740,570 3,875 Extraordinary items (2) - - (1,130,797) - - - - - - - Transfers - fund closings (3) - - - - - - - 272,011 - - Transfers - 15 207,000 (150,000) (401,350) 872,340 (1,635,000) (1,874,120) 107,030 (75,000) Total governmental activities 32,967,378 39,252,838 21,998,887 46,643,585 63,323,133 24,628,986 54,479,667 64,048,512 67,692,667 73,342,983 Business-Type Activities:

Investment earnings 67,182 71,486 12,338 31,573 11,238 42,531 82,187 59,012 75,663 270,371 Transfers - (15) (207,000) 150,000 401,350 (872,340) 1,635,000 1,874,120 (107,030) 75,000 Total business-type activities 67,182 71,471 (194,662) 181,573 412,588 (829,809) 1,717,187 1,933,132 (31,367) 345,371 Total primary government 33,034,560 39,324,309 21,804,225 46,825,158 63,735,721 23,799,177 56,196,854 65,981,644 67,661,300 73,688,354 Change in Net Position/Assets (4)
Governmental activities (70,628) 1,446,744 (15,810,721) 9,123,254 37,210,401 (10,028,694) 13,436,612 13,422,591 14,046,492 17,431,990 Business-Type activities 766,560 704,779 325,410 745,474 (224,868) (872,667) 398,488 1,967,830 (1,322,459) (1,592,213) Total primary government 695,932$ 2,151,523$ (15,485,311)$ 9,868,728$ 36,985,533$ (10,901,361)$ 13,835,100$ 15,390,421$ 12,724,033$ 15,839,777$ (1) The 2006 state take-away of sales taxes, property taxes and vehicle license fees is reported in this category. (2) Asset transfer to Successor to Redevelopment Agency fiduciary trust in 2012. (3) Asset and liability transfer from the closed City Channel/Web Internal Service Fund in 2017. (4) Representes changes in net assets thru fiscal year ended June 30, 2012 and changes in net position after that.

Fiscal Year Ended June 30

CITY OF CUPERTINO
Change in Net Positions/Assets
Last Ten Fiscal Years
(Accrual basis of accounting)
(Unaudited)

99. 2010
General Fund
Reserved 2,308,290$
Unreserved 13,622,828
Total General Fund 15,931,118
All Other Governmental Funds
Reserved 5,465,423
Unreserved, reported in:

Special Revenue Funds 5,113,020
Capital Project Funds 3,788,810
Total All Other Governmental Funds 14,367,253
Total Governmental Funds 30,298,371$
2011 (1) 2012 2013 2014 2015 2016 2017 2018 2019 (2)
General Fund
Nonspendable 1,023,950$ 1,003,438$ 956,827$ 3,363,065$ 938,245$ 937,381$ 876,939$ 464,893$ 454,188$ Restricted 663,254 695,564 725,903 - 761,653 888,374 1,016,771 1,254,578 9,469,670 Committed - - - - - - 19,000,000 19,122,754 19,123,397 Assigned 14,739,394 17,729,297 16,400,000 16,400,000 28,849,679 20,500,000 4,638,181 9,963,310 1,979,202 Unassigned 3,380,279 6,669,379 17,961,579 23,197,378 8,774,966 29,869,085 28,057,799 21,704,922 27,896,128 Total General Fund 19,806,877 26,097,678 36,044,309 42,960,443 39,324,543 52,194,840 53,589,690 52,510,457 58,922,585 All Other Governmental Funds
Nonspendable 615,000 - - - - - - - - Restricted 6,314,106 6,877,301 7,625,215 24,232,367 37,566,052 33,973,433 33,974,921 30,818,617 35,935,838 Committed - - - - 1,398,665 1,398,665 1,398,665 - - Assigned 4,303,822 3,646,073 5,299,904 7,619,534 20,671,116 15,344,191 25,305,974 29,129,616 33,211,946 Unassigned - - - (2,280,961) - - - - - Total All Other Governmental Funds 11,232,928 10,523,374 12,925,119 29,570,940 59,635,833 50,716,289 60,679,560 59,948,233 69,147,784 Total Governmental Funds 31,039,805$ 36,621,052$ 48,969,428$ 72,531,383$ 98,960,376$ 102,911,129$ 114,269,250$ 112,458,690$ 128,070,369$ (1) The City implemented GASB Statement No. 54 under which governmental fund balances are reported as nonspendable, restricted, committed, assigned and unassigned compared to reserved and unreserved (2) The City established a trust to fund Other Post-Employment Benefit contributions, which is classified as a restriction in fund balance.

Fiscal Year Ended June 30

CITY OF CUPERTINO
Fund Balances of Governmental Funds
Last Ten Fiscal Years
(Modified accrual basis of accounting
(Unaudited)
100.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Revenues
Taxes 30,994,583$ 37,582,299$ 40,265,944$ 48,382,570$ 72,211,724$ 55,134,238$ 55,462,956$ 62,924,867$ 64,062,924$ 68,938,973$ Use of money and property 774,219 792,035 661,602 744,196 764,299 915,933 1,654,702 1,425,629 1,543,818 3,896,813 Intergovernmental 7,539,835 3,543,641 2,678,888 2,841,407 3,069,400 7,210,562 2,532,025 2,585,038 5,122,296 3,668,557 Licenses and permits 2,583,131 2,901,944 2,900,936 3,502,617 3,679,943 3,170,445 3,073,110 2,536,925 2,757,928 4,102,665 Charges for services 1,701,157 2,311,216 3,273,946 4,515,066 10,744,113 5,203,371 17,249,123 24,103,167 15,638,247 13,385,698 Fines and forfeitures 736,239 695,666 661,899 560,417 616,889 554,002 564,903 603,194 602,934 534,012 Other 689,941 73,881 264,302 57,828 545,052 542,429 1,289,013 2,004,904 1,834,492 1,187,741 Total revenues 45,019,105 47,900,682 50,707,517 60,604,101 91,631,420 72,730,980 81,825,832 96,183,724 91,562,639 95,714,459 Expenditures:

Current:

Administration 1,469,004 1,528,070 1,533,070 2,005,176 3,957,739 3,897,701 4,053,741 5,942,633 4,943,052 6,294,111 Law enforcement 8,384,310 8,434,885 8,445,917 8,783,885 9,626,121 10,283,772 10,988,735 11,939,095 12,362,621 13,108,732 Public and environmental affairs 1,487,265 1,497,263 1,659,856 1,486,910 477,852 624,295 544,718 1,864,746 2,835,768 2,843,540 Administrative services 3,733,414 3,695,076 4,103,982 3,772,714 2,444,670 3,226,164 2,811,117 5,054,539 4,430,300 4,197,582 Recreation services 4,003,764 4,117,477 4,319,983 4,083,822 4,536,519 5,047,548 5,441,200 9,361,934 8,686,076 8,996,118 Community development 4,125,739 5,693,541 4,762,229 4,395,601 8,424,254 5,180,659 6,102,820 7,431,292 12,907,086 9,359,835 Public works 11,961,218 12,234,726 12,528,194 13,996,516 17,469,627 14,625,038 15,078,174 18,623,585 18,191,714 19,955,579 Capital Outlay 4,710,360 5,281,927 3,523,047 4,684,676 7,110,974 21,760,899 26,171,127 18,731,165 23,395,112 10,528,246 Debt service:

Principal repayment 1,460,000 1,500,000 - 1,920,000 2,040,000 2,055,000 2,090,000 2,135,000 2,180,000 2,220,000 Interest and fiscal charges 2,076,265 2,032,464 1,837,665 1,256,922 1,130,428 1,120,138 1,077,538 1,035,738 993,038 949,438 Payment to refunded debt escrow agent - - 44,897,800 - - - - - - - Total expenditures 43,411,339 46,015,429 87,611,743 46,386,222 57,218,184 67,821,214 74,359,170 82,119,727 90,924,767 78,453,181 Excess (deficiency) of revenues over
(under) expenditures 1,607,766 1,885,253 (36,904,226) 14,217,879 34,413,236 4,909,766 7,466,662 14,063,997 637,872 17,261,278 Other Financing Sources (Uses)
Bond proceeds - - 44,823,839 - - - - - - 3,875 Proceeds from sale of capital assets - 1,055,449 421 - 37,569 23,814,257 580 - 872,250 - Transfers in 7,788,417 5,684,483 6,484,426 8,438,707 13,610,304 39,408,990 11,905,724 26,446,090 31,028,218 19,407,613 Transfers in - fund closing - - - - - - - 260,374 - - Transfers out (10,135,417) (7,883,751) (7,692,426) (10,308,210) (24,499,154) (39,177,284) (15,422,213) (29,412,340) (34,348,900) (21,061,087) Total other financing sources (uses) (2,347,000) (1,143,819) 43,616,260 (1,869,503) (10,851,281) 24,045,963 (3,515,909) (2,705,876) (2,448,432) (1,649,599) Extraordinary Item
Asset transferred to Successor Agencies - - (1,130,797) - - - - - - - Change in fund balances (739,234)$ 741,434$ 5,581,237$ 12,348,376$ 23,561,955$ 28,955,729$ 3,950,753$ 11,358,121$ (1,810,560)$ 15,611,679$ Debt service as a percentage of
noncapital expenditures (1) 9.1% 8.7% 55.6% 7.6% 6.3% 6.9% 6.6% 5.0% 4.7% 4.7% (1) Noncapital expenditures is total expenditures less capital assets added each year to the statement of net position/assets.

Fiscal Year Ended June 30

CITY OF CUPERTINO
Change in Fund Balances of Governmental Funds
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Unaudited)
101.

State Board of Total Assessed & Direct
Total Equalization Secured Est. Full Market Tax
Fiscal Year Secured (a) Unsecured (a) Non-Unitary Exemptions Valuation (a) Rate 2010 12,979,346,158 564,277,611 1,390,000 99,947,559 13,545,013,769 6.51% 2011 13,017,910,372 476,332,025 1,390,000 96,704,811 13,495,632,397 6.51% 2012 13,219,574,367 527,310,319 1,390,000 96,081,912 13,748,274,686 6.24% 2013 13,882,147,291 738,243,050 1,390,000 108,468,872 14,621,780,341 6.20% 2014 15,391,656,690 813,117,019 1,390,000 113,744,809 16,206,163,709 5.62% 2015 16,133,637,244 965,141,148 - 119,476,276 17,098,778,392 5.61% 2016 18,308,720,226 1,086,786,901 - 114,223,063 19,395,507,127 5.59% 2017 20,196,258,418 1,150,311,942 - 118,257,368 21,346,570,360 5.98% 2018 22,024,906,420 1,114,123,426 - 122,805,695 23,139,029,846 6.19% 2019 23,402,123,229 1,779,936,377 - 125,245,819 25,182,059,606 6.38% (a) Net of exemptions
Source: HdL, Coren & Cone
Data Source: Santa Clara County Assessor 2009-10 - 2018-19 Combined Tax Rolls This report is not to be used in support of debt issuance or continuing disclosure statements without the written consent of HdL, Coren & Cone Prepared On 10/22/2019 by MV

CITY OF CUPERTINO
(Unaudited)
Last Ten Fiscal Years
Assessed and Estimated Actual Value of Taxable Property $0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Billions
Secured Property
Unsecured Property
102.

THE CITY OF CUPERTINO
Direct and Overlapping Property Tax Rates
(Rate per $100 of taxable value)
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018-19 Basic Levy¹ 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 Co. Housing Bond 2016 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.01266 0.01050 County Bond 2008 Hospital Facility 0.01220 0.00950 0.00470 0.00510 0.00350 0.00910 0.00880 0.00860 0.00820 0.00720 County Library Retirement Levy 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 0.00240 County Retirement Levy 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 0.03880 Cupertino Elementary 0.03120 0.03080 0.02900 0.05980 0.05250 0.05400 0.05190 0.05090 0.04960 0.03970 El Camino Hospital 2003 0.01290 0.01290 0.01290 0.01290 0.01290 0.01290 0.01290 0.01290 0.01000 0.01000 Foothill De Anza College 0.03220 0.03260 0.02970 0.02870 0.02900 0.02760 0.02400 0.02340 0.02200 0.02170 Fremont High 0.03060 0.03650 0.04150 0.03900 0.04050 0.03960 0.05250 0.04030 0.04640 0.04300 Los Gatos-Saratoga High 1998 0.03520 0.03770 0.03810 0.03680 0.03510 0.05160 0.04230 0.04690 0.04570 0.03040 MidPeninsula Open Space 2014 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00080 0.00060 0.00090 0.00180 Santa Clara Unified 0.07010 0.05190 0.08360 0.08190 0.07070 0.07040 0.09420 0.08180 0.08280 0.07070 Santa Clara Valley Water District 0.00740 0.00720 0.00640 0.00690 0.00700 0.00650 0.00570 0.00860 0.00620 0.00420 Saratoga Elementary 0.03880 0.04370 0.04440 0.04520 0.04500 0.04580 0.04490 0.04560 0.04580 0.04580 West Valley College 0.01400 0.01390 0.01370 0.02890 0.02550 0.01200 0.02320 0.01960 0.02000 0.01980 Total Direct & Overlapping² Tax Rates 1.32580 1.31790 1.34520 1.38640 1.36290 1.37070 1.40240 1.38040 1.39146 1.34600 City's Share of 1% Levy Per Prop 13³ 0.05641 0.05644 0.05650 0.05652 0.05626 0.05617 0.05571 0.05962 0.06148 0.06320 General Obiligation Debt Rate
Redevelopment Rate⁴ 1.04860 1.04840 1.04760
Total Direct Rate⁵ 0.06510 0.06507 0.06238 0.06204 0.05623 0.05610 0.05588 0.05976 0.06187 0.06381 Notes:
²Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all city property owners.

Data Source: Santa Clara County Assessor 2009/10 - 2018/19 Tax Rate Table This report is not to be used in support of debt issuance or continuing disclosure statements without the written consent of HdL, Coren & Cone Prepared on 10/22/2019 by MV
³City's Share of 1% Levy is based on the City's share of the general fund tax rate area with the largest net taxable value within the city. ERAF general fund tax shifts may not be included in tax ratio figues. ⁴Redevelopment Rate is based on the largest RDA tax rate area and only includes rate(s) from indebtedness adopted prior to 1989 per California State statute. RDA direct and overlapping rates are applied only to the incremental property values. The approval of ABX1 26 eliminated Redevelopment from the State of California for the fiscal year 2012/13 and years thereafter. ⁵Total Direct Rate is the weighted average of all individual direct rates applied to by the government preparing the statistical section information and excludes revenues derived from aircraft. Beginning in 2013/14 the Total Direct Rate no longer includes revenue generated from the former redevelopment tax rate areas. Challenges to recognized enforceable obligations are assumed to have been resolved during 2012/13. For the purposes of this report, residual revenue is assumed to be distributed to the City in the same proportions as general fund revenue.

Last 10 Fiscal Years
Agency
¹In 1978, California voters passed Proposition 13 which set the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of any voter approved bonds. 103.
2019 Percentage of 2014 Percentage of
Assessed Total Assessed Assessed Total Assessed
Valuation Valuation Valuation Valuation
Apple Inc. 6,230,181,903$ 24.74% 1,324,522,880$ 8.17% Main Street Cupertino 356,409,129 1.42% 737,959,709 4.55% Vallco Property Owner LLC 333,251,833 1.32% 89,929,542 0.55% Cupertino City Center 199,183,359 0.85% 139,150,359 8.60% BVK Perimeter Square Retail LLC ET AL 177,766,088 0.76% 65,823,879 0.41% Cupertino Property Development 169,923,550 0.73% - - Mission West Properties LP II ETAL 137,663,665 0.59% 105,703,542 0.65% SVF Cupertino City Center Corporation 132,468,803 0.53% 122,400,000 0.76% PR Cupertino Gateway LLC 128,103,411 0.55% - -
SI 38 LLC ET AL 117,340,163 0.50% - -
Total 7,982,291,904$ 31.99% 2,585,489,911$ 23.69% Source: HdL, Coren & Cone

CITY OF CUPERTINO
Principal Property Taxpayers
Current Year and Five Years Ago
(Unaudited)
Taxpayer
104.

Percent of
Percent Delinquent Total Total Tax
Fiscal Total Current Tax of Levy Tax Tax Collections
Year Tax Levy Collections Collected (1) Collections (1) Collections to Tax Levy 2010 8,760,881 8,760,881 100.00% - 8,760,881 100.00% 2011 8,497,119 8,497,119 100.00% - 8,497,119 100.00% 2012 7,681,925 7,681,925 100.00% - 7,681,925 100.00% 2013 8,199,752 8,199,752 100.00% - 8,199,752 100.00% 2014 9,169,183 9,169,183 100.00% - 9,169,183 100.00% 2015 10,178,734 10,178,734 100.00% - 10,178,734 100.00% 2016 11,864,026 11,864,026 100.00% - 11,864,026 100.00% 2017 13,308,884 13,308,884 100.00% - 13,308,884 100.00% 2018 13,172,425 13,172,425 100.00% - 13,172,425 100.00% 2019 16,049,112 16,049,112 100.00% - 16,049,112 100.00% (1) Per the Teeter Plan, the City receives 100% of the tax levy, while the County receives delinquencies and penalties.

Source: City of Cupertino

CITY OF CUPERTINO
Property Tax Levies and Collections
Last Ten Fiscal Years
(Unaudited)
105.

Percentage
of Estimated % of
Fiscal Certificates Actual Market Value Personal
Year of Participation of Taxable Property Per Capita Income 2007 49,740,000 0.45% 929 1.60% 2010 45,510,000 0.34% 815 1.36% 2011 44,010,000 0.30% 755 1.70% 2012 43,940,000 0.27% 744 1.56% 2013 42,020,000 0.26% 705 1.41% 2014 39,980,000 0.23% 671 1.38% 2015 37,925,000 0.20% 633 1.28% 2016 35,835,000 0.18% 598 1.21% 2017 33,700,000 0.15% 579 1.02% 2018 31,520,000 0.13% 525 0.87% 2019 29,300,000 0.12% 488 0.81% Source: City of Cupertino

CITY OF CUPERTINO
Ratios of Outstanding Debt by Type
Last Ten Fiscal Years
(Unaudited)
106.
25,307,305,425$
Total Debt % City’s Share of
6/30/2019 Applicable (1) Debt 6/30/19
Santa Clara County 947,220,000$ 5.096% 48,270,331$ Santa Clara County General Fund Obligations 710,539,120 5.096% 36,209,074 Santa Clara County Pension Obligations 352,378,882 5.096% 17,957,228 Santa Clara County Board of Education Certificates of Participation 4,255,000 5.096% 216,835 Foothill-DeAnza Community College District 620,143,886 13.454% 83,434,158 West Valley Community College District 635,310,000 1.634% 10,380,965 West Valley-Mission Community College District General Fund Obligations 62,200,000 1.634% 1,016,348 Santa Clara Unified School District 1,081,495,000 3.813% 41,237,404 Santa Clara County Vector Control District Certificates of Participation 2,245,000 5.096% 114,405 Fremont Union High School District 562,210,088 29.883% 168,005,241 Cupertino Union School District 274,238,303 50.963% 139,760,066 El Camino Hospital District 124,490,000 1.056% 1,314,614 Midpeninsula Regional Open Space District and General Fund Obligations 209,910,600 8.134% 17,074,128 Santa Clara Valley Water District Benefit Assessment 73,570,000 5.096% 3,749,127 Total Overlapping Tax and Assessment Debt 5,660,205,879 568,739,926 Direct Debt: City of Cupertino Certificates of Participation 29,300,000 100.000% 29,300,000 Total Direct and Overlapping General Fund Debt 29,300,000 29,300,000 Totals by Category: (3)
Total Direct Debt 29,300,000 29,300,000
Total Overlapping Debt 5,660,205,879 568,739,926 Combined Total Debt 5,689,505,879$ 598,039,926$
Ratios to 2018-19 Assessed Valuation:

Total Overlapping Tax and Assessment Debt 2.25%

0.12%
Combined Total Debt 2.36%
(1)
(2) Principal amount as of 6/30/19.

Direct and Overlapping Bonded Debt

CITY OF CUPERTINO
Overlapping Tax and Assessment Debt:
(Unaudited)
2018-19 Assessed Valuation
June 30, 2019
The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable 107.

Total net debt
Total Net Legal applicable to the
Fiscal Debt Debt Applicable Debt limit as a % of
Year Limit to Limit Margin debt limit
2010 486,725,480 - 486,725,480 - 2011 488,171,639 - 488,171,639 - 2012 495,734,039 - 495,734,039 - 2013 520,580,523 - 520,580,523 - 2014 577,187,126 - 577,187,126 - 2015 605,011,397 - 605,011,397 - 2016 686,577,008 - 686,577,008 - 2017 757,359,691 - 757,359,691 - 2018 825,933,991 - 825,933,991 - 2019 877,579,621 - 877,579,621 - Debt Limit:

Secured property assessed value, net of exempt real property 23,402,123,229$ Adjusted valuation - 25% of assessed valuation 5,850,530,807 Debt limit - 15% of adjusted valuation 877,579,621
Amount of Debt Subject to Limit:

Total Bonded Debt 29,300,000
Less: Certificates of Participation not subject to debt limit (29,300,000) Amount of debt subject to limit -
Legal Debt Margin 877,579,621$
Source: City of Cupertino
Last Ten Fiscal Years
Note: The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981-82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time that the legal debt margin was enacted by the State of California for local governments located within the state.

CITY OF CUPERTINO
Legal Debt Margin Information
(Unaudited)
108.

Ratio of General
Fiscal Assessed General Bonded Debt Bonded Debt to Year Population Value Bonded Debt Per Capita Assessed Value 2010 55,838 13,545,013,769 - - - 2011 56,431 13,495,632,397 - - - 2012 59,022 13,748,274,686 - - - 2013 59,620 14,621,780,341 - - - 2014 59,946 17,098,778,392 - - - 2015 59,777 19,395,507,127 - - - 2016 58,185 19,395,507,127 - - - 2017 58,917 21,346,570,360 - - - 2018 60,091 23,139,029,846 - - - 2019 59,879 25,182,059,606 - - - Sources: HdL, Coren & Cone
City of Cupertino

CITY OF CUPERTINO
Ratio of General Bonded Debt
Last Ten Fiscal Years
(Unaudited)
109.

Fiscal
Year
City
Population
(1)
County
Population
(1)
City
Population
% of County
City Personal
Income (2)
Per
Capita
Personal
Income (2)
**Public
School
Enrollment
City
Unemploy
ment Rate
(%) (3)
County
Unemploy
ment Rate
(%) (3)
Median
Age (4)
% of
Population
Over 25
with High
School
Degree
% of
Population
Over 25
with
Bachelor's
Degree
2009-10 55,838 1,800,876 3.10% 3,350,250,000 59,999 10,350 7.2% - 4050.0% 96.5% 69.3% 2010-11 56,431 1,781,642 3.17% 2,586,120,000 45,828 10,365 7.3% - 39.1 96.3% 72.6% 2011-12 59,022 1,809,378 3.26% 2,818,655,000 47,756 10,625 6.3% - 39.2 97.0% 74.7% 2012-13 59,620 1,842,254 3.24% 2,985,829,000 50,081 29,699 4.1% 8.4% 39.5 96.7% 75.5% 2013-14 59,946 1,868,558 3.21% 3,090,636,000 51,557 29,904 3.4% 6.8% 40.0 96.2% 74.2% 2014-15 59,777 1,889,638 3.16% 3,186,772,000 53,311 29,871 4.2% 3.8% 40.0 96.5% 74.6% 2015-16 58,185 1,927,888 3.02% 3,340,132,000 57,405 29,684 3.4% 4.2% 40.2 96.5% 75.6% 2016-17 58,917 1,938,180 3.04% 3,486,805,000 59,181 29,467 3.0% 3.8% 40.6 96.7% 76.0% 2017-18 60,091 1,938,153 3.10% 3,620,255,000 60,246 29,255 3.3% 3.8% 40.7 97.1% 76.6% 2018-19 59,879 1,937,570 3.09% 3,821,320,000 63,817 29,240 2.6% 2.3% 41.1 97.1% 77.2% Notes and Data Sources:

Cupertino City CouncilNovember 18, 2024

Cupertino City Council
November 18, 2024